The BAT-ITC Tussle
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BACKGROUND NOTE Cont..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%.
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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. |
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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.
Throughout the early 1990s, relations between ITC and BAT remained rather
strained. According to analysts[1], this was because, “ITC is one of the few BAT
companies which are ‘associates'rather than subsidiaries. ITC has always been
wayward from the BAT point of view. It is not constrained to follow BAT's global
objectives and business plans and does its own thing with BAT approval.”
BAT was unhappy with Chugh because it was under his regime that ITC had openly
disregarded BAT's authority over the company. What started as a battle between
an MNC parent and its subsidiary, eventually became a battle between a person (Chugh)
and a corporate.
THE WARRING FACTIONS
THE MYSTERIOUS END
QUESTIONS FOR DISCUSSION:
EXHIBIT I ITC: A CHRONOLOGY OF EVENTS
EXHIBIT II ITC SHAREHOLDING PATTERN
EXHIBIT III INCOME & EXPENDITURE STATEMENTS
EXHIBIT IV ITC – SEGMENT WISE SALES
EXHIBIT V ITC – THE BOARD STRUCTURE
EXHIBIT VI A PROFILE OF BAT
EXHIBIT VII CORPORATE GOVERNANCE AT ITC
ADDITIONAL READINGS & REFERENCES:
[1] Business India,
December 18, 1995.
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