The BAT-ITC Tussle
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THE WARRING FACTIONS Contd..In March 1995,
Chugh was called for a meeting with BAT officials in London. During the
meeting, BAT made clear its intentions to increase its equity stake in ITC.
It also demanded Chugh's resignation. Chugh asked for a week's time to
submit his resignation and returned to India. Instead of complying with
BAT's wishes, Chugh held a meeting with his close associates including
Deveshwar, R.P.Agarwal, R.K.Kutty and Mukesh Palta (Vice President of ITC's
tobacco division.) It was at this point that BAT raised the issue of
financial irregularities in ITC.
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BAT expressed alarm at the manner in which Chugh had
apparently ‘departed from the standards of professional management.'BAT's accusation was made on the eve of the EGM convened in March 1995
to approve ITC's diversification into the power sector (deemed to be
Chugh's pet project.) The venture implied a considerable financial
commitment from BAT. BAT made it clear that it would approve the
diversification only if Chugh resigned. Chugh, however, refused to do
so.
At the EGM, BAT was surprised to see two nominees from UTI and ICICI on
the board. Media reports said that the FIs had acted in concert with
ITC, in a ‘well laid-out plan'to thwart BAT's attempts to remove Chugh.
However, the FIs strongly denied this allegation and claimed that their
nominees had been co-opted only because substantial FI money was
involved in ITC's proposed diversification plans[4]. |
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Thereafter, Chugh presented his case before the media. BAT
seemed to have been completely taken aback by these actions, and realized that
it would not be able to put down Chugh easily. In May 1995, Broughton met Chugh
to assure him that it did not have any takeover plans and that it would support
ITC's diversification efforts.
THE MYSTERIOUS END
The charges of financial irregularities were confirmed later on by an audit
committee. The committee said that ITC was involved in certain questionable
deals, which had led to a drop in profits of Rs 2.61 billion for 1995-96.
However, the committee cleared Chugh of all charges. A few days later in
September 1996, Chugh summoned a press conference and to the surprise of
everyone, announced his decision to step down from his post by December 1996.
Chugh said, “Unfortunately, certain serious differences of opinion developed
between BAT and myself over organizational issues. Even though genuine efforts
were made by both sides to resolve these differences, due to a variety of
reasons this was not possible. I feel that it will be in the best interests of
the growth of the company that I step down.” This was a dramatic turnaround from
Chugh's hitherto anti-BAT stand. To add to the mystery, media reports revealed
that not only had BAT agreed to drop all charges against Chugh, it had given him
a very handsome severance package as well as the ‘Chairman Emeritus'status at
ITC. The media considered the peace making moves as efforts by the two sides to
avoid having to ‘wash dirty linen in public.'
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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:
[4] BAT did not get along
well with the financial institutions (FIs), as their holding
in ITC was higher than BAT's. In August 1996, BAT strongly opposed an
agreement between the FIs and ITC, which allowed ITC to take fresh loans
from
the FIs. BAT argued that ITC could meet its fund requirements by cutting
down
capital expenditure, reducing dividend and cutting down operational and
manpower costs. Analysts claimed that the real reason for BAT's opposition
was
that it did not want FI nominees on the ITC board. If ITC took fresh loans
from
the FIs, they would be able to nominate their directors, and this was
something
that BAT did not want.
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