Short-Changed

The recently announced merger of ITC Classic with ICICI is a serious blow to the shareholders of ITC Classic, each of whom will lose from Rs 50,000 to Rs 5 lakh. The holding cost of shares for them was between Rs 55 to Rs 70, and under the merger, they will get shares worth Rs 5. It is clear that ITC Classic has meekly surrendered to the arm-twisting of ICICI, without considering the views of other shareholders views or experts.

According to reports, ITC will provide ICICI a sum of Rs 325 crore without interest for 20 years, and also pay Rs 272 crore in cash to take investment liabilities in ITC Classic subsidiaries.

With this amount, ICICI will take over ITC Classic and offer one share against 15 shares of ITC Classic. ITC Ltd, the promoter and main holder of ITC Classic, has an equity exposure of Rs 105 crore and it will get shares worth Rs 77 crore, losing Rs 98 crore in the swap.Instead of handing over Rs 59 crore to ICICI, ITC should invest the same in gilt-edged securities for 20 years (say, at 11-12 per cent), and securitise the interest income. After discounting, it can easily fetch Rs ,1000 crore. The total liabilities of ITC Classic is said to be about Rs 1,100 crore, with assets also of the same range. Fixed assets like land/building comprise Rs 300 crore and current assets Rs 699 crore. While some other assets may not be recoverable, the securitised income alone is enough to wipe out all liabilities of ITC Classic.

The shareholders of ITC Classic have been short-changed, as rightly said by a leading economic daily.

All shareholders of ITC Classic should take up the issue and block the merger deal.