The Telegraph
Since 1st March, 1999
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Stake deal buzz sets ITC stock afire

Mumbai, Jan. 3: The ITC share was afire on bourses today as investors pounced on rumours that BAT was tantalisingly close to a deal to snap up Unit Trust of India (UTIís) stake in the Calcutta-based company.

The stock jumped 2.34 per cent, or Rs 15.50, to Rs 676.15 even as the BSE sensex lost 7.5 points at 3357.54. The company accounts for 6 per cent of the index value. Volumes were higher at 2.51 lakh shares compared with 70, 000 shares that changed hands on Thursday.

Sources say the mutual fund major is in talks with BAT to sell its 13 per cent stake in the cigarette-to-hotel firm. Market watchers feel the UK cigarette major would have to fork out a big sum to the Trust to buy the shares. The buzz is that the figure could be over Rs 1,050, which is a 55 per cent premium on the market price.

Dealers reckon that the asking amount will be in the range of Rs 950 to Rs 975 óa considerable premium on the current price. Sources close to UTI say it could be higher, between Rs 1,050 and Rs 1,150 for every ITC share.

For UTI, which is in the throes of a radical restructuring, selling ITC shares is not a compulsion any more. This government has ladled out a generous bailout package, and it still has a lot of time to raise the cash it would require to repay its legions of investors.

Many in the market are of the opinion that UTI will do everything it can to unlock maximum value from the sheaf of ITC shares ó by asking a potential buyer to cough up much more than the shares are worth on bourses. The deal will require government and FIPB approvals.

BAT has been a long-time suitor for ITC. The British giant, which holds 31.7 per cent in the company, wants to step into the driverís seat. The Indian management has remained independent to its chagrin.

It will not be smooth-sailing, though. Merchant bankers expect the deal to be a time-consuming affair. UTI and BAT will need a lot of patience before they decide.

Several analysts believe that if UTI sale of its holding in ITC to BAT will call for a major shift in policy given the fact that the government has denied permission to foreign tobacco companies to set up base here.

The Centre will have to consider the political ramifications of letting financial institutions sell their stake to MNCs, especially when the management at the cigarette makerís is not too happy with the idea of the parent taking over the reins of the Indian subsidiary.

There have been reports in the past suggesting that an Indian industrialist could act as a catalyst for the deal, but this has been was denied by all companies concerned.

Markets cool off

The decline in the sensex was a result of a sharp fall in shares of Reliance, HPCL, L&T, MTNL, SBI, Bhel, Grasim, Gujarat Ambuja and ACC.

Had heavyweights like Infosys and ITC not risen smartly, the drop in the index would have been much more pronounced.

Dealers attributed the early firm trend, particularly in the IT segment, to positive clues from New York, where the Dow Jones Industrial Average and the Nasdaq Composite Index shot up by 265.89 and 49.34 points respectively on Thursday. The stock rally was fuelled by an unexpected surge in the manufacturing sector.

However, share prices failed to maintain initial firmness as heavy profit-selling pulled down the prices sharply towards the fag-end.

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