Seita Sides With Tabacalera's Friendly Buyout Bid

[Robert Weissman <rob@essential.org>]

Seita Sides With Tabacalera's Friendly Buyout Bid (Update8)
Source: Bloomberg News, Wednesday, 11/3/99

Paris, Nov. 3 (Bloomberg) -- Seita SA, the French maker of Gauloises
Blondes cigarettes, said it prefers an agreed $2.7 billion takeover by
Tabacalera SA to a potential bid from the U.K.'s Gallaher Group Plc that
would be 50 percent higher.

Gallaher, the maker of Benson & Hedges cigarettes, said it approached
Seita about a possible offer valued at 3.9 billion euros ($4.1 billion),
or 75 euros a share. It hasn't made a firm bid. Seita said it prefers its
planned merger with Spain's Tabacalera, which will create western Europe's
No. 3 cigarette company and the world's leading cigar maker.

Tabacalera's all-stock bid, currently 50 euros a share, has dropped about
16 percent in the past month, partly on concern that a combination with
Seita lacked the international brands and expansion strategy to compete
effectively against rivals such as New York-based Philip Morris Cos., the
biggest cigarette maker in the world.

``The market hasn't responded super-positively to the proposed merger with
Tabacalera,'' said analyst Jonathan Fell of Merrill Lynch & Co. in London.

Shares of Paris-based Seita have fallen about 9 percent in the past month.
They rose 5.05 euros today, or 9.9 percent, to 56 euros after newspaper Le
Figaro reported the approach by Gallaher.

Gallaher rose 2 pence, or 0.5 percent, to 372p ($6.12), and Madrid-based
Tabacalera rose 0.07 euro, or 0.5 percent, to 15.72 euros.

Gallaher, based in Surrey, England, has less than three weeks to make its
move before the closing of Tabacalera's offer on Nov. 23.

Partners Seita and Tabacalera, two former state-owned companies, are
teaming up to compete against growing demand for foreign brands such as
Philip Morris's Marlboro cigarettes. The companies plan to use their
combined distribution systems to expand outside of their domestic markets.

``The board of directors reiterates that, following a thorough strategic
review, it has chosen Tabacalera as its partner,'' Seita said in a
statement. ``It has great potential for Seita in its three businesses as
well as for its employees and shareholders.''

Gallaher also aims to expand internationally to offset shrinking demand in
the U.K., where the maker of Silk Cut cigarettes does 86 percent of its
business.

If Gallaher purchased Seita, it would increase its market value to about 7
billion euros from about 4.1 billion euros. A Tabacalera-Seita combination
would have a market value of about 6 billion euros, having declined 500
million euros in value since the companies' Oct. 6 merger agreement.

Share Swap Tabacalera's dark-tobacco brands account for half the
cigarettes sold in Spain. It's offering 19 of its shares for every six of
Seita's. Seita also agreed to pay its shareholders a special net dividend
of 5 euros per share before combining with the Spanish company.

Tabacalera rose as much as 6.8 percent today as investors bought the stock
to limit losses on shares they had borrowed and sold in the hope of
profiting from a further decline. Analysts said many investors sold
Tabacalera to buy Seita to benefit from the planned special dividend.

The number of Tabacalera shares borrowed for so-called short selling rose
to 25 percent in recent weeks from 5 percent, according to estimates by
Grupo Ahorro Corporacion Financiera.

``Tabacalera is rising on bad news for technical reasons,''

said Carlos Ramos, an analyst at Grupo Ahorro.

J.P. Morgan is advising both Seita and Tabacalera. Credit Commercial de
France is advising Seita, and Argentaria SA is advising Tabacalera.
Gallaher typically works with Dresdner Kleinwort Benson.

--Anne Brockhoff in the London newsroom (44 171) 330 7100 and Jacqueline
Simmons in Paris, with reporting by Simon Packard in Paris, and Jeffrey
Lewis and Paul Torbin in Madrid, through the Princeton newsroom (609)
279-4000/rev/gh/cod