Fast moving consumer goods (FMCG) major ITC Ltd may be ring-fencing the proposed hotel company from future hostile takeovers by holding 40 per cent stake in that company, say analysts.
Recently, the ITC Board announced its approval to demerge its hotels' business into a separate company called ITC Hotels Ltd.
As per the de-merger scheme, ITC will hold 40 per cent stake in ITC Hotels while the remaining 60 per cent will be held by other shareholders.
ITC Hotels will pay a royalty for using the ITC brand in its name.
"Perhaps ITC has decided to hold a 40 per cent stake in ITC Hotels to avoid any hostile takeovers. If they had wanted to exit the business, they could have exited,” Shobit Singhal, Research Analyst, Anand Rathi Shares and Stock Brokers, told IANS.
Added Naveen Trivedi, Deputy Vice President, HDFC Securities: "Hotel is one business that consumes a lot of capital. The return on the investment will come later. ITC may not want any hostile takeover of the hotel company when the business starts giving returns."
While ITC does not have any Indian anchor promoter group holding a chunk of shares, about 29.10 per cent stake is held as foreign direct investment (FDI) - Tobacco Manufacturers (India) Ltd - 23.94 per cent, Rothmans International Enterprises Ltd -1.25 per cent, and Myddleton Investment Company Ltd - 3.91 per cent.
The above investment vehicles, as per the de-merger scheme, will hold about 17.4 per cent stake in ITC Hotels and there is a risk of them selling off that when the company gets listed.
If that happens, it is as if handing over the business to an acquirer on a platter at a time when the investments start paying back good.
Analysts cited the hostile takeover of software company Mindtree by L&T couple of years back.
ITC told analysts that it will not buy back the shares from the above shareholders if they decide to exit.
Today, ITC has over 11,600 keys/rooms in over 120 hotels in over 70 locations. The company is also building one hotel in Sri Lanka – the first overseas property.
Soon after the de-merger announcement, the markets reacted adversely and ITC’s share price came down by about three per cent.
Out of the total capital employed by ITC, about 20 per cent is accounted for by the hotel business while the EBITA was only about two per cent, Trivedi said.
According to Singhal, the enterprise value of ITC Hotels could be about Rs 25,000 crore.