The BAT- ITC Tussle

<< Previous

Background Note Contd...

By 1919, BAT had transferred its holdings in Peninsular and ILTC to Imperial. Following this, Imperial replaced Peninsular as BAT's main subsidiary in India. Throughout the 1920s, Imperial appointed distributors and agents in various parts of the country. As sales were growing faster in North India than elsewhere in the country, Imperial set up its third factory at Saharanpur in UP in 1924. A year later, Imperial set up a printing factory at Munger. In 1928, Imperial's head-office in Calcutta was inaugurated. In the early 1930s, Imperial's sales declined sharply.

The Independence movement and its aftermath left the company's distribution network severely damaged and many areas became inaccessible overnight due to the partition. The company however managed to re-establish its distribution network and went on to become very successful in the next few decades. By the late 1960s, the Indian government began putting pressure on multinational companies to reduce their holdings. Imperial divested its equity in 1969 through a public offer, which raised the shareholding of Indian individual and institutional investors from 6.6% to 25%. Though Imperial clearly dominanted the cigarette business, it soon realized that making only a single product, especially one that was considered injurious to health, could prove to be a problem. In addition, regular increases in excise duty on cigarettes had a negative impact on the company's profitability. To reduce its dependence on the cigarette and tobacco business, Imperial decided to diversify into new businesses. It set up a marine products export division in 1971.

The company's name was changed to ITC Ltd. (ITC) in 1974. In the same year, ITC reorganized itself and emerged as a new organization divided along product lines. In 1975, ILTC was made a division of ITC. In the mid 1970s, ITC decide to concentrate on filter cigarettes where it had identified a latent demand. ITC's Wills Filter brand, promoted through the 'Made For Each Other' campaign, became an immediate success.

In 1975, ITC set up its first hotel in Madras. The company diversified into the textile industry with Tribeni Handlooms in 1977. The same year, ITC set up Bhadrachalam Paperboards. In 1981, ITC diversified into the cement business and bought a 33% stake in India Cements from IDBI. This investment however did not generate the synergies that ITC had hoped for and two years later the company divested its stake.

In 1986, ITC established ITC Hotels, to which its three hotels were sold. It also entered the financial services business by setting up its subsidiary, ITC Classic Finance. In 1994, ITC commissioned consultants McKinsey & Co. to undertake a detailed study of the businesses of the company and make suitable recommendations. McKinsey advised ITC to concentrate on its core strengths and withdraw from agri-business where it was incurring losses. During the late 1990s, ITC decided to retain its interests in tobacco, hospitality and paper.

ITC either sold off or gave up the controlling stake in several non-core businesses. ITC divested its 51% stake in ITC Agrotech to ConAgra of the US, the world's fourth largest company in the food business. ITC Zeneca, the seed manufacturing company, and ITC Palm Tech were also merged with the new agri-business entity. Tribeni Tissues (which manufactured newsprint, bond paper, carbon and thermal paper) was merged with ITC.

Next >>