BAT pares stake in ITC to 22.9%, relinquishes veto power in key move

BAT's latest stake sale trims its ITC holding below 25 per cent, ending veto rights just a year after it cited the importance of maintaining control through board influence

British American Tobacco Plc (BAT) on Wednesday sold a 2.5 per cent holding in ITC, ceding its veto power in the cigarettes-to-soap conglomerate. 

In a filing with the London Stock Exchange (LSE), the maker of Dunhill and Lucky Strike said that it has completed the sale of 313 million ordinary shares in ITC to institutional investors by way of an accelerated bookbuild process, or block trade. These shares represent 2.5 per cent of ITC, and net proceeds amount to ₹12,941 crore. 

Data released by domestic bourses showed BAT affiliate firm Tobacco Manufacturers India sold 156.5 million shares in two tranches at a weighted average price of ₹413.12 and ₹413.78.  The names of the buyers were not disclosed. 

ITC’s shares fell 3.2 per cent in the secondary market to end at ₹420, valuing the conglomerate at ₹5.26 trillion. 

With this sale, BAT’s holding has reduced to 22.94 per cent. While announcing the sale on Tuesday, the firm had said it would retain a 23.1 per cent holding in ITC. Market sources said the block deal was slightly upsized thanks to strong investor demand. 

BAT’s stake is now below the 25 per cent threshold limit and marks a shift in its boardroom manoeuvre. A 25 per cent holding allows shareholders to influence or oppose resolutions, especially special resolutions that require 75 per cent of the votes cast to be in their favour.   

An email sent to BAT regarding the exchange filing received the response: “No further comments will be provided at this time.”

In 2023, Tadeu Marroco, chief executive, BAT, had outlined the importance of having “at least 25 per cent of shareholding in India.”  In March 2024, BAT sold 3.5 per cent to initiate its buyback programme. The sale — which brought its stake down to 25.44 per cent — generated net proceeds of 1.6 billion pounds. 

According to Abneesh Roy, executive director and head of research committee, Nuvama Institutional Equities, said: “Till date, we remember only once when BAT blocked a special resolution on Esop (employee stock ownership). So, not a material thing.” He was referring to a 2018 incident when BAT had used its veto power to block a special resolution to grant stock options to employees of ITC and its subsidiaries.  

The plan had received 63.49 per cent of votes in favour, against a requisite majority of 75 per cent. While 98.77 per cent of the institutions had voted in favour, 89.22 per cent of the non-institutional public shareholders, which included BAT, voted against the resolution.   

BAT said then that it had been clear since 2010 that it would not be supportive of any future proposals that were dilutive to ITC’s shareholders. This prompted ITC to introduce a new scheme — a Stock Appreciation Rights Scheme (SARS) — leading to minimum addition to share capital. 

Since this incident, BAT’s position seems to have undergone a marked shift with the United Kingdom-based company paring stake in ITC for the second time in two years. The turn of events is especially ironic, considering that back in 1994, BAT had tried to secure control of ITC with a majority stake. 

It has been a long way since then — the British multinational is currently focused on its commitment to invest behind transformation, deleverage and enhance shareholder returns.