ITC Hotels: Reasonable recipe

The ITC Hotels stock fell around 16 per cent to Rs 122 to adjust for the swap ratio set for its merger with ITC. That, however, does not mean ITC Hotels investors have got a raw deal.

ITC Hotels' share price was only correcting, as it had jumped 20 per cent to Rs 162 when its management said that it was considering a merger with ITC.

Based on the merger ratio and the closing prices of ITC and ITC Hotels on Wednesday, it turns out that the ITC Hotels scrip has been given a value of Rs 124.

This is close to the average of the closing prices of the scrip six months prior to the merger announcement. On the NSE, the average of six month's closing prices was Rs 126.5.

From an ITC shareholder's point of view, the deal doesn't have any major financial implications. ITC holds around 72 per cent of ITC Hotels, which was already reflected in its consolidated accounts.

The equity dilution would be less than 0.5 per cent, and although the deal is EPS accretive, the increase is negligible.