The ITC Classic Story

THE MERGER POST-MORTEM Contd...

While ICICI was happy over getting a large deposit base of about seven lakh, it seemed to have ignored the fact that the base was built on high interest rates offered by Classic - about 16%. ICICI was forced to give this promised interest while the going rates were much lower. Also, deposits aggregating Rs 550 crore were to mature by 1999, threatening to be a cash outflow burden on ICICI. However, ICICI tried to average out the interest outgo by asking the depositor coming in for renewals to switch over to ICICI books. This was easy to do as the depositors got the security of an AAA-rated institution. ICICI soon began the ‘clean-up operation'of Classic's balance sheet by substituting high-interest liabilities. As 75% of Classic's clients were ICICI clients as well, ICICI was confident of recovering 8-16% of the outstanding amounts from various parties. ICICI sources claimed that the Classic merger would not affect the dividend or the non-performing assets of ICICI. This was supported by his justification that Classic was a company with an asset base of just Rs 1000 crore, while ICICI's asset base was as large as Rs 41,000 crore.

QUESTIONS FOR DISCUSSION:

1. Analyze the reasons behind Classic's failure. Do you agree that the company's demise was largely due to ITC's poor handling of the company? Support your answer with reasons.

2. Explain the reasons behind ICICI agreeing to merge with the loss-making Classic. Was the merger truly a win-win situation for both the parties involved?

3. ‘Classic should have stuck to its leasing and asset financing business rather than entering secondary market operations.'Critically comment on the above statement.

ADDITIONAL READINGS & REFERENCES :

1. Ramachandran K., ITC Classic Finance - Hard Times Ahead, Business Line, November 10, 1996.
2. Dutta Sudipt & Mittra Kaveri, Who knew, who profited, Business India, November 18, 1996.
3. Dutta Sudipt & Mittra Kaveri, Dousing the fire, Business India, December 2, 1996.
4. De Mainak, A tough year for ITC Classic, Business World, December 25, 1996.
5. Dutta Sudipt & Augustine Das Babu, Going up in smoke? Business India, February 24, 1997.
6. De Mainak, ITC falls in line, Business World, March 16, 1997.
7. Roy Abhijit, Will ITC Classic find a suitor? Business India, May 22, 1997.
8. Dutta Sudipt, The fire after the smoke, Business India, June 30, 1997.
9. Classic collapse, Business India, July 14, 1997.
10. Kothari Dheer, ICICI, ITC Classic mull over merger, Financial Express, November 26, 1997.
11. ICICI-ITC Classic swap ratio at 1:15, Business Line, December 2, 1997.
12. Pinto Roy, Augustine Das Babu & Roy Abhijit, A classic bargain, Business India, December 15, 1997.
13. Rajashekar B Hema & Ghosal Avijit, Is ICICI-ITC Classic Truly A Win-Win? Business Today, December 22, 1997.
14. Kumar M.P.Vinod & Kovoor Anjana, Timely bailout, Business India, December 29, 1997.
15. Merger of ITC Classic - ICICI shareholders vote, results today, Business Line, January 13, 1998.
16. ITC Classic Finance poll, Financial Express, January 14, 1998.

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