The BAT- ITC Tussle

"ITC does not need BAT."

- J N Sapru, former ITC Chairman, in 1994.

The BAT- ITC Tussle: 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.

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