Calcutta, Sept. 5 :    Calcutta, Sept. 5:  ITC is set to merge its paperboard subsidiary, ITC Bhadrachalam, with itself. The tobacco-to-hotels major informed stock exchanges today that its board will meet on September 21 to consider the proposal. The move is in line with the company's plan to sharpen its focus on non-tobacco businesses. ITC and its investment subsidiary, Russell Credit, hold 61.05 per cent in Bhadrachalam, having increased their stake by 5 per cent in just over a year. Russell Credit raised its holding in Bhadrachalam by over 4 per cent through the creeping acquisition route in 2000-01, and a little less than 1 per cent in the five months of this financial year. ITC plans to invest Rs 1,500 crore in the paperboard business over the next few years, and has recently lent Rs 252 crore in inter-corporate loans to Bhadrachalam. ITC saw its paperboard subsidiary through troubled times until it turned the corner. After recovery, Bhadrachalam had looked at the possibility of acquisitions, but has now decided to focus on organic growth. ITC has recently entered into a bevy of new businesses - greetings card and lifestyle retailing for instance - but these ventures are being run by the group flagship. Speaking to reporters after the company's annual general meeting last month, ITC chairman Y.C. Deveshwar said it was a wrong decision to spin off different businesses into subsidiaries. 'We should have leveraged the ITC brand for all business, instead of creating independent subsidiaries,' he said. ITC's relies heavily on Bhadrachalam for raw materials to make greetings cards. The company sees great potential in the business. What is more, for its tobacco business, ITC needs high quality packaging. Bhadrachalam caters to this as well. The stock markets reacted positively to the move. The ITC scrip shot up Rs 31.80 (4.4 per cent) to close at Rs 753.20, while the Bhadrachalam scrip moved up by 9 per cent to close at Rs 47.50 on the Bombay Stock Exchange. BAT holds the key However, one of the contentious issues relating to the proposed merger is the reduction of BAT plc's stake in ITC as a consequence of the merger. BAT holds a shade under 32 per cent in the tobacco major. Deveshwar had earlier said BAT had always protected its stake from being pared down, and had even prevented ITC from growing through mergers and acquisition if such steps led to dilution in BAT's holding in ITC. A BAT spokesperson refused to comment on the development. 'We have nothing to say till the board meeting. All we can say at this point is that ITC kept us posted on its plans of merging Bhadrachalam.' The ITC spokesperson refused to speak on the matter. But sources in institutions close to ITC said BAT and ITC must have reached a consensus before the proposal was officially mooted. 'ITC will have to seek shareholders' approval to a special resolution on the merger, which BAT can always block. ITC would not have come up with the matter in the first place if it did not manage to win over BAT's resistance if any,' an institutional representative on the ITC board added. The two companies have not been looking eye-to-eye for some time now, following BAT's proposal to increase its stake in VST Industries, which Deveshwar opposes. He said, he supported the government's view that investment in the tobacco industry should not be encouraged. BAT has been preparing itself to seek the approval of the Foreign Investment Promotion Board (FIPB) for its proposed stake hike in VST. The London-based tobacco major will have to obtain ITC's approval to go ahead with its plans.