ITC set to demerge hotel biz, stock falls

livemint.com:

MUMBAI : ITC Ltd, India’s largest cigarette maker, said its board approved a proposal to separate its hotels business to unlock value and foster focused growth, a move awaited by shareholders for long. Under the new scheme, shareholders of the cigarette-to-hotel major will own 60% of the demerged entity directly and the rest through their shareholding in ITC. The proposed structure disappointed investors, sending the share price plunging 3.87% at the end of trading on Monday.

Before the announcement of the demerger, ITC briefly surpassed Hindustan Unilever Ltd (HUL) as the most valuable Indian packaged consumer goods company, with a market value of ₹6.22 trillion against HUL’s ₹6.12 trillion. ITC’s scheme of arrangement will be presented for board approval at the next meeting scheduled for 14 August. ITC said the demerger would help the new entity attract “appropriate investors" and “strategic partners/collaborations" whose investment strategies and risk profiles are aligned more sharply with the hospitality industry.

“In addition, it will unlock the value of the hotels business for the shareholders by providing them a direct stake in the new entity along with an independent market-driven valuation thereof," it said. “The proposed demerger is a testament to the company’s commitment to creating sustained value for stakeholders," said Sanjiv Puri, the chairman of ITC. “The creation of a hospitality-focused entity will engender the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry.