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BAT, Wadia may team up for UTI stake in ITC

BS Corporate Bureau in Mumbai

British American Tobacco, the UK-based tobacco giant, is understood to be teaming up with an Indian company to buy the Unit Trust of India's approximately 12 per cent stake in ITC.

The Indian company is likely to be a Nusli Wadia group company. A London-based merchant banker is examining various options on the contours of the deal.

Contacted in the UK, BAT spokesman David Betterridje said: "We don't want to comment on speculation. We have made no formal approach to UTI. Neither have they approached us."

Asked further whether BAT was teaming up with a Wadia company, Betterridje said: "We are not prepared to comment on speculation."

Repeated efforts to contact Nusli Wadia for comments proved futile. UTI holds nearly 12 per cent of ITC's equity. If the deal is finalised, BAT, which already has a 31.7 stake in ITC, would, alongwith the Wadia company, emerge as the largest shareholder and so would be in a much stronger position to call the shots at ITC.

The banks, financial institutions, insurance companies and mutual funds have a combined holding of about 35.43 per cent. Without UTI's 12 per cent in ITC, their combined stake in the Kolkata-based tobacco giant would come down to 23.43 per cent.

Government sources indicated that in the last couple of weeks, BAT has been showing interest in acquiring UTI's stake in ITC.

But they pointed out that a final view on this issue could be taken only after finalising the UTI bailout package which is expected in the next few days.

The finance ministry, it is reliably learnt, is inclined to smoothen the way for the sale of the ITC stake. The implicit understanding is that the proceeds of UTI's sale of the ITC stake will be used to partly offset the loan that the government will give UTI to bridge the deficit in the US-64 scheme.

UTI has informally obtained approval in principle from the government to sell its stake in ITC, though UTI chairman M Damodaran has underlined the point that it is for the UTI board to decide on the matter.

It is likely that the deal would have to be cleared by the Foreign Investment Promotion Board, which will demand clearance by the ITC board as per regulations. The current ITC management led by Y C Deveshwar has in the past fiercely opposed BAT raising its stake from the current level of 31.7 per cent.

Also, BAT would not on its own be able to bid for UTI's stake because government policy bars foreign direct investment in the tobacco industry.

Wadia has in the past partnered French foods giant Danone to move into Britannia Industries, at a time when Danone was battling with Rajan Pillai for control of Britannia.

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