The ITC Classic Story
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THE MERGER POST-MORTEMMedia reports claimed
that pressure from FIs coupled with desperation drove ITC to hand Classic on
a platter to ICICI. K.V. Kamat, managing director, ICICI had maintained
right from the beginning that he would consider the deal as long as it did
not involve any cash outgo. The issues of ITC bringing in substantial funds,
providing cushion against bad debts and loans and accepting an ‘unfair'swap
ratio kept surfacing in the media. The only silver lining for the unhappy
Classic shareholders'seemed to be the fact that they could hope for a
better future with ICICI.
TABLE I
GAINERS AND LOSERS
| |
ICICI |
Classic |
Investors |
| The Upsides |
Risk-free takeover of a retail network since ITC would
pay Rs 622 crore for ITC Classic's NPA. |
Selling off a business it was not keen on, which
enabled BAT to enter financial services on its own. |
Acquiring, for every 15 shares in a sick company, 1
ICICI share whose value was bound to rise. |
| The Downsides |
ITC Classic's NPAs might be larger than projected, and
its depositors might cash out. |
A fall in profits in 1997-98, since it would also have
to cope with the Rs 800 crore excise duty claims. |
An ICICI share would have to rise by 400% if the
pre-merger ITC Classic share price was to be realized. |
Source: Business Today, December 22, 1997.
As far as ICICI was concerned, it seemed to be a clear
‘win'proposition. The biggest benefit for ICICI was Classic's retail
network comprising eight offices, 26 outlets, 700 brokers and a
depositor-base of 7 lakh investors. ICICI planned to use this to strengthen
the operations of ICICI Credit (I-Credit), a consumer finance subsidiary
that ICICI had floated in April 1997. Kamath said, “The retail network will
help us save two to three years. Our estimate of opening 15-20 branches to
reach a million people at the retail level required at least 2-3 years. This
offer came our way, which had the retail network already in place.” An
additional benefit for ICICI was in the form of the Rs 110 crore tax-break
because of Classic's losses and the provisions for bad loans. This was
something ICICI badly needed since its net profits of Rs 572 crore during
the first half of 1997-98 had increased by 71.77% per cent.
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QUESTIONS FOR DISCUSSION
ADDITIONAL READINGS & REFERENCES
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