ITC Share Price Soars 8%: BAT Sells 3.5% Stake in Block Deal

In early trade on Wednesday, ITC share price witnessed a surge of over 8% fueled by reports of a block deal involving British American Tobacco Plc (BAT) as the likely seller of ITC shares. The rally saw ITC shares reaching as high as ₹439.00 on the Bombay Stock Exchange, the block deal involved approximately 43.7 crore ITC shares, constituting 3.5% of the total equity of the company transacted at an average price of ₹400.4 per share. The total value of the transaction amounted to approx ₹17,491 crore.

Block Deal Details

BAT, which holds a stake of over 29% in ITC had previously announced its intention to divest a 3.5% stake in the company through block deals. The sale was reported to take place at a price range of ₹384-400.25 per share representing a discount of 4-5% to ITC’s previous closing price of ₹401.90 on the National Stock Exchange. The lock in period for the deal was set at 180 days. After the transaction BAT shareholding in ITC will reduce to 25.5% adhering to its commitment not to fall below 25%. Tadeu Marroco, CEO of BAT expressed that the sale would facilitate the initiation of a sustainable buyback while enabling the company to continue deleveraging towards a new target range of adjusted net debt/adjusted EBITDA.

Despite ITC shares facing a correction of nearly 20% from its peak and a YTD decline exceeding 13% due to news of BAT stake sale brokerage firm CLSA has upgraded the stock to 'Buy' citing an attractive multiple in a volatile market environment. CLSA set a target price of ₹486 per share. BAT intends to utilize the proceeds from the ITC stake sale to initiate a share buyback program extending until December 2025 starting with GBP 700 million in 2024. Bank of America and Citigroup have been appointed as investment banks to manage the share sale.

BAT History with ITC

British American Tobacco first invested in ITC way back in the early 1900s. BAT expresses full support for ITC management, performance and strategy, acknowledging its value for shareholders. Analysts suggest that while ITC's proposed stake sale won't alter its fundamental outlook it may temporarily impact the stock due to excess supply. However, Jefferies sees this as a potential buying opportunity given ITC strong brand presence and FMCG growth.

The availability of a large block of shares could attract investors without affecting market prices. However, BAT faced difficulties in selling its 4% ownership in ITC mainly because of regulatory obstacles imposed by the Reserve Bank of India. BAT's CEO, Tadeu Marroco highlighted the immense complexity of divesting ITC shares citing specific RBI approvals required which limit the universe of potential buyers.

To Summarize

While ITC's stock may face temporary fluctuations due to the excess supply resulting from the block deal analysts perceive potential buying opportunities given the company's fundamental strengths in the FMCG sector.