British American Tobacco sells $1.5 billion stake in India's ITC via block deal

British American Tobacco (BAT) sold a $1.5 billion stake (2.5%) in Indian consumer goods company ITC at 413 rupees per share, a 4.8% discount to Tuesday's closing price, leading to a nearly 3% drop in ITC's share price; the sale exceeded initial plans to sell $1.4 billion worth of shares. BAT will use the proceeds to increase its 2025 share buyback program by 200 million pounds, with no other expected impact on its annual outlook, and will remain ITC’s largest shareholder after the deal.

Analysis

British American Tobacco (BAT) has executed a significant block trade, divesting a 2.5% stake in Indian consumer goods company ITC for $1.5 billion. The sale involved 313 million shares priced at 413 Indian rupees each, a 4.8% discount to ITC's closing price on the preceding Tuesday. This transaction, which exceeded its initial target of $1.4 billion from 290 million shares, led to an immediate adverse reaction in ITC's stock, causing it to fall nearly 3% to 421.70 rupees and become the top loser on both the Nifty 50 and FMCG indices. Despite this sale, BAT will retain its position as ITC's largest shareholder. The proceeds from this divestment are earmarked to enhance BAT's capital return program, with the company announcing a 200 million pound increase to its 2025 share buyback scheme, bringing the total to 1.3 billion pounds. This transaction is not expected to alter BAT's annual financial outlook otherwise. This recent sale follows a similar, larger divestment by BAT last year, where it sold approximately 3.5% of ITC's outstanding shares for about $2 billion. BAT had previously forecast a modest 1% annual revenue growth, citing tax headwinds in key markets like Bangladesh and Australia, providing context for its capital management strategies. The deal was managed by Goldman Sachs and Citigroup and marks the second major block trade in India this week, indicating a period of active capital market activity and portfolio adjustments by significant stakeholders.

Key Decisions for Investors

• Investors in British American Tobacco should view the augmented share buyback program positively as it enhances shareholder returns, although careful monitoring of the company's ability to achieve its modest 1% revenue growth target amidst tax pressures is warranted.
• For ITC shareholders, the block sale at a discount implies continued short-term price pressure and a potential overhang if BAT signals further divestments, though the oversubscription of this deal suggests underlying institutional demand for ITC equity at these levels.
• Market participants should recognize that the succession of large block trades in India signals a dynamic capital market environment, potentially presenting strategic entry or exit opportunities and reflecting significant capital reallocation by institutional investors.