ITC shareholders approve demerger of hotels Filesadmin.co with 99.6% majority

Shareholders of conglomerate ITC voted in favour of the demerger of its hotels business with an overwhelming majority.

The voting results were disclosed by the company after the National Company Law Tribunal (NCLT)-convened shareholders meeting on Thursday to approve the demerger of the hotels business into ITC Hotels. According to a stock exchange filing, 99.6 per cent of the votes were in favour of the demerger resolution.

The resolution for approval of the scheme of arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors has been passed by the members by the requisite majority, the filing mentioned.

The ITC stock on Thursday closed at Rs 435.80 on the Bombay Stock Exchange (BSE), up by 1.28 per cent.

The shareholder nod came amid a recommendation to vote “against” the resolution from domestic voting advisory firm Institutional Investor Advisory Services (IiAS). Other firms such as InGovern and Stakeholders Empowerment Services (SES) had advised their clients to vote in favour.

The majority of the shareholders who participated at the NCLT-convened meeting on Thursday spoke in favour of the resolution.

Responding to a shareholder query on the timeline for completion of the demerger process, ITC chairman and managing director Sanjiv Puri indicated that the timeline for completion of the process till listing was going to take six to eight months because some more steps in the process have to be crossed.

The company has received approvals from the stock exchanges, the Securities and Exchange Board of India (Sebi), and the Competition Commission of India (CCI). After the approval of shareholders, it would seek approval from the tribunal.

Rationale behind demerger

Explaining the rationale behind the demerger, Puri said that the demerger would create a separate ‘pure play’ hotels entity, that will drive the next horizon of growth for the hotels business with its asset-right strategy and enable sustained value creation for the shareholders. In addition, ITC Hotels would have a strong debt-free balance sheet with a net worth of nearly Rs 10,000 crore, which it can leverage to raise capital from the debt and/or equity markets going forward should such a need arise.

The ITC board had approved the demerger scheme in August 2023. Under the plan, existing ITC shareholders will receive one share of ITC Hotels for every 10 shares of ITC they own. After the demerger, ITC shareholders will directly own 60 per cent of the new company, with ITC holding the remaining 40 per cent.

The proposed scheme, Puri said, would be a ‘win-win’ outcome in the best interests of both the companies and their respective shareholders, employees, creditors, and other stakeholders.

Growth pipeline

ITC adopted the asset-right strategy a few years back. Puri explained, “The strategy of the company articulated a few years back is asset right – a balance between managed properties, which will be the larger component of our growth in the future. And also, there will be some calibrated investments where the company deems fit for it to invest.”

The asset-right strategy is likely to take ITC Hotels to over 200 properties in five years. Currently, there are over 80 locations with over 135 properties.

ITC’s hotels business has had a stellar showing, riding on the post-Covid hospitality boom. In FY24, the hotels segment of ITC recorded revenues of Rs 3,103 crore and pre-tax profit of Rs 765 crore.

To a shareholder query on whether ITC Hotels would be managed jointly with BAT, the single largest shareholder in ITC, Puri said ITC Hotels would be managed by its board.

Unlocking shareholder value

On demerging other businesses, Puri said that it was important for any business to create ‘sustained value’ and the board was guided by this principle.

“The management does review from time to time the arrangement that will create sustained value given the competitive context, the maturity of the industry, and the benefits that accrue from the synergies in the enterprise. We look at all the pros and cons and then make an informed decision. The demerger of the hotels business is a reflection of this whole process,” Puri told shareholders.

First Published: Jun 06 2024 | 5:50 PM IST