Board Clears Licensing Deal For Bat Brands

The ITC Ltd board yesterday decided to go in for a licensing arrangement for the new foreign brands BAT wants to introduce in India. The board also set up a five-member management committee to replace the committee of directors.

The licensing arrangement was considered as the best option for all parties since the joint venture route for bringing in the brands had been ruled out, board sources said. The committee of directors had also decided against going in for a joint venture.

The brands to be introduced in India include State Express 555, and Benson and Hedges.

ITC sources said the Indian tobacco major would manufacture and market the BAT brands under its own portfolio and pay a licence fee to BAT.

 

The payout and and other formalities would have to be decided in consultation with the government, the sources said. The tenure of the agreement is expected to be between 20 and 30 years.

The difference between a licensing arrangement and a contract manufacturing option, which was one of the alternatives, is that under a contract agreement, the contract manufacturer would merely produce the brands and pass them back to the owner, who would then do the rest.

A licensing arrangement, on the other hand, makes ITC the licensee of the BAT brands under its own brand portfolio.

The financial institutional nominees on the ITC board had all along supported the licensing arrangement.

How much ITC pays out will depend on the discussions with the government, the sources said.

The ITC board feels the licensing arrangement would be in the best interests of the company's shareholders, which include the financial institutions and BAT.

The ITC Ltd board was also apprised of the developments in ITC Agro Tech, in which Nebraska-based foods multinational ConAgra is making an entry as a strategic partner.

The board also discussed the constitution of a management committee, which would replace the committee of directors (CoD).

The CoD looked after the day-to-day affairs of the company. Five top ITC executives, including tobacco division and finance chiefs Anup Singh and Mukesh Palta, are in the new committee, which also has the remaining executive directors Saurabh Misra, Biswadev Mitter, N Sitaraman and F R Vevaina. The committee is chaired by ITC chairman Y C Deveshwar.

In an earlier top-level reshuffle in January, ITC placed Singh as CEO of India Tobacco Division, with Ranjit Jacob as chief executive of Tribeni Tissues division.