Minority shareholders to benefit from ITC Hotels demerger, will unlock value and improve return ratio

Minority shareholders are expected to benefit from the demerger of ITC's hotel business into a separate entity, ITC Hotels, as it may unlock value for them and improve return ratios of the FMCG major, as per reports of four proxy advisory firms.

The reports from proxy advisory firms, including InGovern Research Services, ISS and SES, come ahead of the June 6 meeting of shareholders of ITC to consider and approve the demerger proposal.

According to proxy advisory firm ISS, the demerger may unlock value for its shareholders and improve ITC's return ratios.

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"The structure will enable ITC Hotels to operate with an optimal capital structure with the ability to access capital to fund its growth requirements.

"It can attract the right set of investors, strategic partners and collaborations whose investment strategies are more sharply aligned with that of the hospitality industry," ISS said in its report.

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Last year in August, ITC board had approved the demerger of its hotels business into a separate entity. Shareholders of ITC will get one share in the soon-to-be-listed hotel entity for every 10 shares they hold in the company.

Highlighting the benefit of demerger, another advisory firm InGovern said that the current ITC shareholders will receive a direct stake in a dedicated, publicly traded hotel entity, becoming shareholders of a specialized company focused solely on the hotel business.

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This move aligns with ITC's corporate strategy of fostering multiple growth drivers, ensuring continued interest in the hotel sector, and protecting against potential hostile takeovers in the future, it said.

"Given the clean swap of shares which is beneficial for the minority shareholders as well as for the growth of both the companies, we recommend shareholders vote for this scheme of arrangement," it said.

Proxy advisory firm SES is of the view that the decision to keep 40 per cent stake with ITC is a strategic decision to give stability and allow fair discovery of price and is in interest of shareholders. SES does not identify any major concern with regard to the proposed demerger.

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Another proxy advisory firm Glass Lewis has also recommended the proposed demerger scheme.

However, Institutional Investor Advisory Services (IiAS) has suggested shareholders of ITC Ltd to vote against the proposed demerger of the hotel business on the grounds that it does not provide complete value unlocking for shareholders.