British American Tobacco (BAT) Plc offloaded a 2.5 per cent stake in India’s ITC Ltd for ₹12,100 crore through block trades on Wednesday, paring its holding to 22.9 per cent.

This is the second share sale by the maker of Dunhill and Lucky Strike in two years, prompting some sector observers to note that BAT could be looking at more tranches of offloading going forward.

The volume of share sale was a little higher than projected. On Tuesday, BAT had said it would sell 2.3 per cent of ITC.

The ITC stock reacted to the bulk trades, which has been struck at around ₹413 per share, going down 3.18 per cent, or ₹13.2 a share, to close at ₹420.1. The stock also went ex-dividend from today.

In a regulatory statement to the London Stock Exchange, BAT said, “The transaction will provide greater financial flexibility as it delivers on its commitment to invest behind transformation, deleverage and enhance shareholder returns.”

The net proceeds from the block trade will also be utilised to extend the group’s existing share buyback programme announced on March 18,2024 by an additional £200 million, taking the total amount to be repurchased in 2025 to £1.1 billion.

Abneesh Roy of Nuvama Institutional Securities noted that the development is a ‘bit negative’ for ITC as overhang of further stake sale by BAT will return after a few quarters.

“Hence near term, we expect stock to come back but be range bound between ₹400-470. It can go higher after a few quarters if BAT clarifies that there would be no further stake sale,” Roy said in a note.

Lose control

After the latest round of stake sale, the London-based company is letting go of its stronghold on ITC as it would not be in a position now to influence crucial board resolutions.

Special resolutions, which have the ability to pivot an enterprise’s course, require 75 per cent of votes polled to be in favour to be passed. Two years back, BAT CEO Tadeu Marrocco stressed the importance of holding at least 25 per cent stake in ITC. BAT held a 29.02 per cent stake in the Indian company.

BAT’s control over ITC’s affairs was on display in 2018, when it vetoed ITC’s plan to offer stock options to employees. The special resolution received 63.49 per cent vote, falling short of 75 per cent required to be passed. Public non institutions, which included BAT entities, voted overwhelmingly against the resolution.

The company had then said, “We have been clear that we would not be supportive of any future proposals that are dilutive to our shareholding.”

However, with debt piling up on the balance sheet and pressure building from shareholders to introduce a buy back programme, BAT was forced to take a U-turn on its stance.