Proxy advisory firm Institutional Investor Advisory Services (IiAS) has asked shareholders to vote against diversified conglomerate ITC’s proposal to demerge its hotels business into ITC Hotels.
On the contrary, two other proxy advisory firms — Stakeholders Empowerment Services (SES) and InGovern Research Services — have asked investors to support the move.
According to IiAS, with ITC continuing to hold 40% of the hotels business, and its existing 13.69% holding in EIH and 7.58% equity in HLV, the transaction does not provide shareholders a complete exit from the hotels business. “While it partially unlocks value (to the extent of 60%), capital support will likely continue to be provided by ITC to the hotels business in its capacity as a promoter,” IiAS said in a note to shareholders.
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The board has not articulated if it proposes to eventually sell its 40% holding in the hotels business to a strategic buyer or continue to hold it, the note added.
In August 2023, ITC received board approval for the demerger of its hotels business and the use of the ITC brand name. The demerger is expected to be completed in this calendar year. Last week, the National Company Law Tribunal directed ITC to convene a shareholders’ meeting on June 6 to get their approval for the demerger.
Under the scheme, shareholders would get one share of the hotels’ business for every 10 shares held in ITC. No cash consideration would be paid. Following the demerger, ITC will own 40% in ITC Hotels, while the remaining 60% will be held by ITC shareholders in proportion to their ownership in the parent entity.
According to IiAS, ITC’s argument of synergies between the hotels business and its other agri and FMCG businesses is not materially reflected in the inter-segment revenues. Further, the synergies are likely limited by the size of the hotel business revenue, which is ITC’s smallest and accounts for 3% of aggregate revenues.
There is also no clarity on the terms of the brand usage fees between ITC and the hotels business, it said, adding that the proposed structure, while designed to improve ITC’s ratios, provides neither a complete value unlocking for shareholders, nor does it materially reduce any capital support responsibilities for the hotel business from ITC.
On the other hand, SES had a “for” recommendation for the resolution, saying it had identified no concern. There is no issue on valuation as shareholding of hotel business will be a mirror image of ITC, it said, adding that divestment of 60% is beneficial to shareholders given the new company will need continuity, stability and strategic support.
InGovern also supported the move , saying the hotels business has matured over the years and is ready to chart its own growth path as a separate entity. Apart from unlocking value, the separated business would have the ability to raise and allocate its own capital, it said.
From: financialexpress
Financial News
