The BAT-ITC Tussle

THE MYSTERIOUS END Contd..

In a November 1996 board meeting, the ITC board decided to suspend three Executive Directors in addition to the three already suspended. They were suspended after ITC was charged with several unethical practices during the 1990s^[5]. Following this, in December 1996, BAT again sent a letter to the FI shareholders in ITC proposing to remove Deveshwar and two other directors. BAT claimed that the ITC board was not discharging its duties effectively and should be removed. It was reported that BAT did not want to license its brands to ITC because of the Chugh episode. However, BAT changed its stand, following measures taken by ITC to improve its corporate governance practices beginning 1997.

By June 1997, the two companies seemed to have resolved their differences, as BAT licensed ITC to manufacture and sell some of its prestigious global brands including 555 State Express and Benson & Hedges. Though analysts expressed concern over these brands cannibalizing ITC's own brands, Deveshwar claimed, “This is a win-win situation for both ITC and BAT.”

QUESTIONS FOR DISCUSSION:

1. ‘BAT was not concerned about the financial irregularities at ITC – its demand for Chugh's resignation was just a cover-up for the stake-hike issue.'Critically comment on this statement. What were the reasons for the BAT-ITC tussle during Chugh's tenure?

2. Why do you think ITC claimed that it ‘did not need BAT?'Do you think ITC was justified in making such a claim, especially in view of the fact that in June 1997 it entered into a deal with BAT to manufacture and sell some of BAT's premium global brands?

EXHIBIT I

ITC: A CHRONOLOGY OF EVENTS

Year	Event
1910 ITC was incorporated as Imperial Tobacco Company of India Ltd.
1926	The company buys a plot of land at 37, Chowringhee, Kolkata.
1928	Virginia House is established.
1969	The company's name is changed to Indian Tobacco Company.
1971	Marine Product Exports start.
1974	The company's name is changed to I.T.C. Ltd.
1975	ITC enters the hotel business.
1979	ITC enters the paperboards business.
1983	India Cements deal is reversed, J N Sapru takes charge.
1985	ITC sets up Surya Tobacco Co. a JV in Nepal.
1988	Seed and oil brands are launched successfully.
1989	Chugh becomes the Vice-Chairman.
1990	Acquires Tribeni Tissues Ltd.
	Sets up the International Business Division.
1991	Chugh became the Chairman.
1993	The ITC-Peregrine deals and the GDR issue land ITC in trouble with BAT.
1994	Chugh agrees to BAT's stake-hike plans.
Feb-95	Chugh and BAT disagree over the nomination committee issue.
Mar-95	BAT asks Chugh to resign.
	Chugh goes to the media, accusing BAT of trying to take over ITC.
	BAT accuses Chugh of financial irregularities; investigations begin.
May-95	Talks between BAT and Chugh fail.
	ITC is charged with excise evasion.
1996	ITC faces FERA violation charges, many senior executives arrested.
Sep-96	Chugh announces his resignation.
	BAT drops charges against Chugh.
1997	ITC accused of share price manipulation.
Jun-97	BAT licences the sale of its global brands to ITC.
Late 1990s	ITC enters the garment retailing and greeting cards businesses.
	The company focuses on improving corporate governance.
2001	The company's name is changed to ITC Ltd.

Source: ICMR

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:

^[5] During the 1990s, ITC had been accused of various unethical practices
including excise violation, FERA violation, insider trading, share price manipulation
and mismanagement of funds. Chugh and a few other directors were even arrested
temporarily in connection with these charges.