The ITC Classic Story
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Case Details:
Case Code : FINC005
Case Length : 6 Pages
Period : 1991 - 1996
Pub. Date : 2002
Teaching Note : Available
Organization : ITC Classic, ICICI
Industry : Financial Services
Countries : India
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FINC005) click on the button below, and select the case from the list of available cases:
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
The Classic Post-Mortem
Many management consultants remarked that though Classic emerged as a full-scale financial services company in early 1990s, it never matured from its original status as an asset financing subsidiary. A majority of Classic's problems stemmed from the structural anomalies like cross holdings in other group companies. Although consultants McKinsey & Co and Arthur Andersen (who had been mandated to go into the details of restructuring Classic in the mid 1990s), had emphasized the need for untangling Classic from the corporate maze of cross holdings in the group companies, no action was taken to do so...
The Merger
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ITC soon realized that only one of the country's three mega-financial institutions - Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI), or ICICI would be in a position to absorb Classic's losses and bad loans.
ITC approached IDBI and ICICI and held extensive discussions with both the FIs. Eventually, a deal was struck with ICICI at a swap ratio of 1 ICICI share for 15 shares of Classic.
In January 1998, shareholders of Classic approved the company's amalgamation with ICICI with 99.93% of the votes in favor of the resolution...
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The Merger Post-Mortem
Media reports claimed that pressure from FIs coupled with desperation drove ITC to hand Classic on a platter to ICICI.
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K.V. Kamat, managing director, ICICI had maintained right from the beginning that he would consider the deal as long as it did not involve any cash outgo. The issues of ITC bringing in substantial funds, providing cushion against bad debts and loans and accepting an 'unfair' swap ratio kept surfacing in the media. The only silver lining for the unhappy Classic shareholders' seemed to be the fact that they could hope for a better future with ICICI. As far as ICICI was concerned, it seemed to be a clear 'win' proposition. The biggest benefit for ICICI was Classic's retail network comprising eight offices, 26 outlets, 700 brokers and a depositor-base of 7 lakh investors... |
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