FMCG shares fall 5% after its largest shareholder is likely to sell a 2.3% stake

On Wednesday, the ITC shares declined by 4.8 percent, touching a day’s low price of Rs. 413 per share on NSE. The largest shareholder in ITC, which is BAT (British American Tobacco Plc), is preparing to sell around a 2.3 percent stake in the diversified conglomerate through a block deal. Investment banks Citi and Goldman Sachs are managing the proposed transaction, with deal is estimated at $1.36 billion, with a floor price of Rs. 400 per share as per various sources.

This move will provide BAT with increased financial flexibility while supporting its commitment to invest in transformation, deleverage, and increase shareholder value. As per sources, the proceeds will help BAT progress toward its target of 2 to 2.5x adjusted net debt/adjusted EBITDA leverage corridor by the end of 2026 and increase its share buyback program by 200 million pounds to a total of 1.1 billion pounds in 2025.

In early 1990s, BAT made initial investment in ITC, marking its long-standing and mutually beneficial relationship. Following the completion of the proposed block trade, BAT will remain a significant shareholder of ITC, holding approximately 23.1 percent of the company.

This marks the second stake reduction by BAT in ITC, after a 3.5 percent stake sale last year that generated around Rs. 16,690 crore. According to a notification to the London Stock Exchange, BAT's wholly owned subsidiary, Tobacco Manufacturers (India) Ltd, will execute the share sale in ITC.

BAT's Chief Executive, Tadeu Marroco, stated that “ITC is a valued associate of BAT in an attractive geography with long-term growth potential where BAT benefits from exposure to the world's most populous market. Whilst this transaction supports delivery on our commitments to BAT shareholders, we continue to view ITC as a core strategic component of our global footprint as we partner on business opportunities in India. I am confident that ITC, under the stewardship of its current management, will continue to create further value for its shareholders.”

The offer price of Rs. 400 per share was at a discount of around 7.8 percent to ITC's closing price on May 27. ITC stock has corrected by around 20 percent from its 52-week high price of Rs. 528.50 per share, last reached on 27th September 2024. In the past 1 year, the shares have delivered a negative return of 1.7 percent and a 5-year positive return of 114 percent.