The case examines the tussle between ITC Limited (ITC) and its parent company British American Tobacco (BAT) during the mid-1990s. The case also details the issues over which the two companies disagreed, with a focus on the ITC Chairman K L Chugh's role in the battle.
"ITC does not need BAT."
- J N Sapru, former ITC Chairman, in 1994.
PUBLIC DRAMA
In March 1995, a press release issued by the UK-based global tobacco major British American Tobacco (BAT) shocked the Indian corporate world. Expressing a lack of confidence in K L Chugh (Chugh), the chairman of its Indian subsidiary, the Indian cigarette industry leader ITC, the press release demanded his resignation.
The incident took place soon after Chugh had accused BAT of trying to forcibly increase its stake in ITC to gain majority and that BAT was not in favor of ITC's diversification into the power generation business.
Though the ITC-BAT relationship had been strained for quite some time, the move took ITC by surprise. The surprise element was BAT's claim that it was not demanding Chugh's resignation because of the shareholding issue, but because it had detected certain financial irregularities in the company. BAT said, "Chugh should resign in the interests of the company, its employees and its shareholders."
Soon after, Chugh called a press conference, at which he categorically refused to resign, "Just because one of the shareholders throws a tantrum does not mean the chairman goes." He reiterated his stand that BAT was trying to increase its stake and added that BAT only wanted to use ITC's funds for its own benefits.
Soon, the inside details of the ITC-BAT conflict became public knowledge as a series of allegations and counter-allegations from both the parties surfaced in media reports. Commenting on the showdown, a report said, "As skeletons come tumbling out, ITC's carefully nurtured public image as a professionally managed enterprise has been tarnished."
BACKGROUND NOTE
ITC's history goes back to 1905, when BAT set up the Peninsular Tobacco Company (Peninsular) in India. Peninsular was involved in cigarette manufacturing, tobacco procurement and processing. It set up a full-fledged sales organization named the Imperial Tobacco Company of India Limited (Imperial) in 1910. To cope with the growing demand, BAT set up another cigarette manufacturing unit in Bangalore in 1912.
To handle the raw material (tobacco leaf) requirements, a new company called Indian Leaf Tobacco Company (ILTC) was incorporated in July 1912. The poor quality of tobacco obtained from Bihar prompted ILTC to search for better alternatives, leading to the establishment of the South India Leaf Area (SILA) in Andhra Pradesh.
Case Code BECG012 Case Length 11 Pages Period 1996-2002 Organization ITC BAT Pub Date 2002 Teaching Note Available Countries India Industry Food, Beverages & Tobacco
Issues
Tussle between BAT and ITC, Corporate Governance, Role of BAT in the whole issue, FERA Violations by ITC, role of Chugh in the ITC controversy.
Keywords
ITC Limited, ITC, British American Tobacco, BAT, 1990, disagreed, ITC Chairman, K L Chugh, battle, case Study, and business Case study.
Please note:
This case study was
compiled from published sources, and is intended to be used as a basis for
class discussion. It is not intended to illustrate either effective or
ineffective handling of a management situation. Nor is it a primary
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