[Intl-tobacco] Recent Tobacco Privatization News Clips -- Italy, S. Korea, Bulgaria, Possible Gallalhers' Takeover

[Robert Weissman]

Thanks to Ross Hammond for compiling this set of clips.


BAT, Swedish Match Are Among Those Mulling Bids for Italy's ETI
By Andrew Davis

Rome, Sept. 17 (Bloomberg) -- British American Tobacco Plc and Swedish Match
are among potential bidders for Ente Tabacchi Italiani SpA, Italy's
cigarette monopoly, in a sale that may raise as much as 1.4 billion euros
($1.4 billion) for the government.

The buyer will gain a dominant position in a 13 billion-euro tobacco market,
second in Europe to Germany. ETI, maker of Toscano cigars and MS ``State
Monopoly'' brand cigarettes, controls 90 percent of Italian tobacco sales
through licensing agreements with rivals such as Philip Morris Cos.

``We are very motivated to acquire ETI and we are working on important plans
to relaunch the company,'' Massimo Rossi, the head of Swedish Match's
Italian office, said in a faxed statement. The Swedish company makes Red Man
chewing tobacco, as well as cigars, lighters and matches.

Prime Minister Silvio Berlusconi's government has promised to raise 60
billion euros from asset sales in the next four years, while keeping a
pledge to cut taxes by 7 billion euros next year. Without the sales, Rome
risks overshooting the European Union's deficit limit of 3 percent of gross
domestic product.

Falling stock prices have delayed government sales of publicly traded
companies including Enel SpA, the country's dominant power company, and
Alitalia SpA, the national air carrier, for more than a year. ETI isn't
traded.

Potential Bidders

Eight companies expressed an interest in bidding for ETI, the last of the
big Western European cigarette makers up for sale, the Finance Ministry said
without identifying them. It hasn't set a deadline for bids and has reserved
the right to hold a public share sale of the cigarette and cigar maker.

``We have presented our official letter of intent to the Italian
government,'' said Sarah Corbey spokeswoman for BAT, the world's
second-largest tobacco company. ``As a company, we'd like to continue our
presence in the Italian market.''

Not all of the investors interested in ETI have experience in the tobacco
industry. Alessandro Benetton, chairman of 21 Investimenti and a board
member of his family's clothing business, and Luca Cordero di Montezemolo,
chairman of Ferrari SpA, are leading a group of Italian investors that
presented an expression of interest yesterday.

Altadis, Europe's third-largest tobacco company, said it submitted a joint
letter of interest for ETI with Equinox Investment Company. Altadis
Co-Chairman Jean Dominique Comolli has said companies in Italy and Morocco
would be attractive because they are similar and in nearby markets.

Price

ETI should fetch about 1.9 times estimated sales of 750 million euros this
year, analysts have said, putting it in the middle of a range of recent
tobacco-company acquisitions.

Gallaher Group Plc, the U.K. maker of Benson & Hedges, paid 1.5 times sales
in its 2.1 billion-euro purchase of Austria Tabakwerke AG last year, while
Imperial Tobacco Plc, the maker of Lambert & Butler, paid 5.22 billion
euros, or 2.2 times sales, for Germany's Reemtsma Cigarettenfabriken
GmbH in
March.

Philip Morris, the U.S. maker of Marlboro cigarettes, probably won't keep
its licensing arrangement with ETI if the company is sold to a rival, so
ETI's new owner may face competition from the biggest tobacco company,
analysts have said.

Imperial Group Plc decided not to go after ETI following its purchase of
Reemtsma earlier this year.

``We're are concentrating on integrating our Reemtsma acquisition,'' said
Sue Tudor of Imperial Group Plc.

Goldman Sachs Group Inc. is advising the government.

THE SKEPTIC: Will Altadis Win Over Italy, Philip Morris?

By BRIAN TRUSCOTT

   A DOW JONES NEWSWIRES COLUMN
LONDON -- A growing list of global tobacco players are lining up for a
chance to buy out Italy's state-owned monopoly.

Who will win?

Philip Morris (MO) - the world's largest tobacco company outside China's
National Tobacco Corp - may be in the best position to answer that vexing
question.

Why? Well, the government is auctioning off Ente Tabacchi Italiani, or ETI,
in the wild hope of raising some EUR1.4 billion. Now, Eti controls 100% of
cigarette and cigar distribution in Italy, but it's Philip Morris brands
that have a 60% market share, thanks to a manufacturing and distribution
agreement with the government.

Yes, ETI has a 27% share of the cigarette market, but about 40% of that
volume is linked directly to a Philip Morris contract - a deal that will
probably be terminated in 2005 or so, in part because the schedule of
payments to the government becomes increasingly more onerous for Philip
Morris.

Anyway, these arrangements mean the U.S. company has considerable leverage
in vetting or choosing which rival will be able to play ball in Italy,
Europe's second-largest tobacco market. It's a good bet any large rival such
as British American Tobacco (BTI) will be at a disadvantage in the auction,
simply because PM won't want to see a key competitor manufacturing and
distributing its cigarettes.

In other words, if BAT did win, expect an angry appeal from PM, which has
never been happy cooperating with its U.K. rival even in the best of
circumstances.

Other more likely candidates include: Altadis (E.ATD), which has teamed up
with private equity group Equinox, which is 35% owned by Italian lender
IntesaBci, Japan Tobacco (J.JTB), Swedish Match (S.SWM), Imprendatori
Associati, an Italian consortium chaired by Ferrari chief executive Luca
Cordero de Montezemolo, and the Tabaccai Associate 2001, a consortium of
Italian tobacco distributors.

Now, if Berlusconi's government doesn't flex its nationalistic muscle to
keep ETI firmly in the hands of Italian businessman, then Altadis - and its
newfound Italian tie-up - appears to have the best chance of winning the
auction. Japan Tobacco is apparently keen, but the company's intentions in
Europe are in doubt, because the R.J. Reynolds operations it bought a few
years back continue to flounder and lose market share in Europe, especially
after it lost out to Imperial Tobacco (ITY) in the Reemstma bidding war.

Ultimately, any potential winner faces a tough task, because it will
have to
renegotiate manufacturing and distribution contracts with Philip Morris,
reputedly a difficult negotiator.

This prospect will no doubt weigh heavily on ETI's price. That's why a
mooted EUR1.4 billion price tag looks rich - it gives the deal a 10X
EV/EBITDA multiple and a projected return on investment of just 6%.

The complexity of the deal means more realistic bids of around EUR1 billion
will materialize. The government can always reject this and opt to take ETI
public, but the inherent risk - together with the prospect that Philip
Morris is preparing to terminate its ETI contract - means the government
will likely bite the bullet.

And they will likely choose Philip Morris-favorite Altadis, a Franco-Spanish
rival that desperately needs to pull off a deal to reinvigorate its business
and market value.

And don't forget Philip Morris may favor Altadis for strategic reasons -
which might have everything to do with getting its hands on one of the
industry's treasured brands: Altadis' Gaulois Blond.

-By Brian Truscott, Dow Jones Newswires; 44-20-7842-9289;
brian.truscott@dowjones.com

Updated September 19, 2002 7:48 a.m. EDT


09/17 01:00
South Korea Revives $393 Mln Sale of Tobacco Stock (Update1)
By Youngsam Cho


Seoul, Sept. 17 (Bloomberg) -- South Korea is reviving a 479 billion won
($393 million) sale of Korea Tobacco & Ginseng Corp. shares, with marketing
to begin tomorrow and pricing scheduled for Oct. 9, bankers involved in the
transaction said.

Korea in July shelved plans to sell a remaining 14 percent stake in the
cigarette-maker because investors weren't willing to pay a high enough
price. Bankers hired to arrange the revived sale said they want to offer the
26.3 million shares to overseas investors from Sept. 26 to Oct. 8 and set
terms on Oct. 9.

Korea Tobacco may command a better price now as tensions between the U.S.
and Iraq make companies with steady revenue and more assured dividends
attractive. The company's shares have risen 20 percent since reaching a low
this year on June 19, compared with a 7.3 percent slide in the benchmark
Kospi.

War ``is weighing on everyone's minds right now and this stock is relatively
attractive,'' said Henry Lee, managing director at Hendale Asia Fund
Ltd. in
Hong Kong, adding he may buy some of the shares. ``The timing is good.''

Dongwon Securities Co., Goldman Sachs Group Inc., Hyundai Securities Co. and
UBS Warburg are arranging the sale.

Goldman spokesman Peter Rose and UBS' Mark Panday declined to comment, as
did spokesmen at both Korean banks who declined to be identified. Kim Geum
Nam, deputy director at the Finance Ministry's treasury bureau, said he was
unaware of the plans.

While Iraq said it would allow United Nations weapons inspectors
unconditional access to the country, the United States rejected the move as
a delaying tactic, indicating the tension and threat of war are likely to
remain.

Risk Remains

``Nothing has changed,'' said Lee Young Seog, who manages 600 billion
won at
Dongwon Investment Trust Management Co. in Seoul.

Korea Tobacco plans to spend 17.8 billion won buying back 1 million of its
shares between Sept. 23 and Dec. 20, the company said in a statement to the
stock exchange. Its shares rose 2.5 percent at 1:43 p.m. in Korea to 18,200
won, recovering from an earlier fall of as much as 1.7 percent.

The cigarette-making monopoly produces about eight of every 10 cigarettes
sold in the world's eighth-largest smokers' market.

The company had a dividend yield of 8 percent as of March 15, 2002, compared
with the average yield of 1.6 percent paid by the 677 members of the Kospi
as of March 28.

The Amex Tobacco Index has been outperforming broader stock indexes since
reaching a low this year on July 22. The 12-member index has returned 16
percent in the period, against a 7.7 percent gain in the Dow, according to
Bloomberg data.

``This may be about the best time to sell the shares,'' said Hwang Chan, an
analyst covering the stock for SK Securities Co. in Seoul. ``There is no
telling what a war will do to stock prices. It's best to avoid that risk.''

Threat of Peace

Still, oil had it biggest drop in five months, U.S. bonds fell while the
dollar and stocks rose on the Iraqi statement, signalling investor
confidence that a peaceful resolution will be found. If the threat of war
recedes, the sale may face the same problems that led to its earlier delay.

Korea in July scrapped plans to sell the shares after its advisers told the
government a quarter of investors they had surveyed in a pre-marketing
exercise asked for a discount of at least 5 percent to the stock's market
price.

The government in June failed to sell most of the Korea Tobacco shares it
offered to domestic investors after marketing them at a 4.5 percent premium.
The government was then forced to sell the unsold shares as bonds
convertible to stock, eventually raising 644 billion won.

Dow Jones Business News
South Korea to Issue Global Depositary Receipts for Tobacco Firm in October
Wednesday September 18, 2:01 am ET


SEOUL, South Korea -- South Korea's Ministry of Finance and Economy said
Wednesday it is aiming to price Korea Tobacco & Ginseng Corp.'s planned
global depositary receipts on Oct. 9.
The issue is worth about $370 million, and represents a 13.8% stake
owned by
the government.

The move would enable the government to fully divest its shares and fully
privatize South Korea's dominant cigarette maker.

The GDR issue will represent 26.336 million underlying shares, the ministry
said.

The issue, originally scheduled for July, had been delayed because of a
deterioration in global stock market conditions.

The ministry had said Tuesday that one GDR will be equivalent to 0.5 share
of Korea Tobacco & Ginseng.

Although worries over the U.S. economy and accounting scandals have delayed
a recovery of U.S. stocks, it would still be desirable to issue the GDRs by
early October as market uncertainties could increase in the future amid
fears of a U.S. attack on Iraq, the ministry said.

If the government delays the GDR issue further, it could overlap with plans
for other possible issues of depositary receipts including LG Card Co.'s
$400 million issue, Japan Tobacco Inc.'s $2 billion issue and China
Telecom's $2 billion issue scheduled after mid-October, said the ministry.

Kim Sang Kyoo, manager at LG Card's investor relations department, said
Wednesday the company won't likely issue depositary receipts this year
because of weak market conditions.

The government will launch an international roadshow starting Sept. 26. It
will visit major global cities including Singapore, Hong Kong, London and
New York.

To privatize Korea Tobacco, the government already sold a 19.36% stake in
June through a secondary offering of shares and exchangeable bonds.

-By Shin Jung-won, Dow Jones Newswires; 822-732-2165; jung-won.shin@
dowjones.com

Dow Jones Business News
Bulgarian High Court Blocks Bulgartabak Sell-Off
Tuesday September 17, 1:09 pm ET


SOFIA -(Dow Jones)- Bulgaria's Supreme Administrative Court Tuesday
suspended the privatization of state tobacco monopoly Bulgartabak
Holding AD
until a lower court rules on the appeals by three losing bidders against the
sell-off procedure.

The sale of Bulgartabak had been seen raising much-needed cash and boosting
investor confidence in the government's reform efforts.

A consortium of Sofia-based Tobacco Capital Partners and Dutch-registered
Clar Innis, backed by Deutsche Bank AG , won the tender for 80% of
Bulgartabak on Aug. 23 with a bid of EUR110 million. A 45-day term was set
for finalizing the deal.

However, the other three bidders - the Russian-based Metatabak consortium,
Russian-based Rosbulgartabak, and Vienna-based consortium Tobacco Holding
GmbH - appealed against the result of the tender in the Supreme Court,
citing irregularities in the procedure.

"The Privatisation Agency can't sign the Bulgartabak privatization deal with
the selected buyer until there is a ruling on the appeals by the other
contenders," a court official told Dow Jones Newswires.

The decision didn't grant the right of appeal. A court session considering
the appeals is scheduled for Oct. 3.

The Privatization Agency had initially said the tender was fair and
transparent. It declined to comment on the court's ruling Tuesday.

The three contenders, which dropped out of the tender, had criticized the
agency for not allowing them to improve their final bids, after they were
opened in July.

A commitment to buy the highest amount of domestically produced tobacco was
the most important criterion in the evaluation of the bids. Price was
second, followed by employment and investment pledges.

TCP-CI pledged to increase the amount of locally bought tobacco from 40,000
metric tons in 2003 to 62,000 metric tons in 2006.

Bulgartabak's businesses comprise 12 processing factories, nine cigarette
factories, and one producer of tobacco driers, filters and packing. It also
has five cigarette-making factories in Russia and one each in Ukraine,
Romania and Yugoslavia.

-By Elizabeth Konstantinova, Dow Jones Newswires; +359-98-476954;
eliza_1000@yahoo.com



September 17, 2002
Market forces: Big tobacco about to get bigger
The Guardian (UK)

Despite the fact that its stock price is within a whisker of a record high,
market professionals reckon that Gallaher , the maker of Benson & Hedges and
Silk Cut cigarettes, has further to go.
The reason is the likelihood of a bid emerging from its bigger rival,
British American Tobacco , owner of the Lucky Strike and Rothmans
brands, in
the not too distant future.
Of course such speculation has done the rounds numerous times since Gallaher
was demerged from American Brands in 1997. Indeed, there were rumours
earlier this year that BAT was lining up an offer of pounds 5.3bn, or
900p a
share.
Nevertheless the logic of a deal remains. BAT, which makes most of its money
in North America and the emerging markets, needs to boost its presence in
the UK and western Europe, and Gallaher, which has 40% of the UK mar ket and
strong positions in the Austrian and German markets, fits the bill
perfectly.
Gallaher shares last night closed 6.5p lower at 690p, while BAT gained 10p
to 760p.
The market as a whole was in the doldrums as investors either decided to
book profits made on Friday or stay on the sidelines ahead of the coming
anniversary of the US terror attacks. In light trading, the main FTSE 100
index fell 44.8 points to 4,062.4.
On the eve of its half-year results, Anglo-American , the South
African-based mining group, managed to buck the weak trend. Its shares
improved 17p to 772p - the best performance in the FTSE 100 - as the
prospect of conflict in Iraq sent the gold price to a six-week high of $322
an ounce. Anglo-American is one of the world's biggest gold miners.
Next , up 17p at 872p, was in demand in spite of speculation that the
outlook statement, which will accompany Thursday's interim figures, is
likely to prove disappointing. With retail sales slowing and Marks & Spencer
, off 1p at 347p, enjoying a new lease of life under the management team of
Vandevelde and Holmes, dealers would not be surprised if Next was finding
the going heavy.
British Airways , down 3.25p at 131.75p, remained in the FTSE 100 relegation
zone after Deutsche Bank lowered its target price to 130p from 160p.
Given the present macroeconomic and geopolitical uncertainties, the German
securities house believes there is little prospect of a recovery in the
airline industry this year.
EMI and International Power , the two other companies likely to be ejected
from the main index in tomorrow's reshuffle, put in mixed performances, with
the former gaining 3.25p to 172p and the latter drifting 1.5p to 109p.
It was a busy day over in the insurance sector. There was brisk trade in
Legal & General , down 2.25p at 112.75p, on rumours that the firm would an
nounce a pounds 800m rights issue this morning. The details of the offer are
said to be one share for every four owned at a discounted price of 65p.
Royal & SunAlliance shed 4.5p to 126.5p amid concerns that investors might
shun its planned rights issue because of exposure to asbestos litigation in
the US.
Despite rumours that the financial services authority could be looking into
last Thursday's shock profits warning, Marlborough Stirling , the financial
services software company, topped the FTSE 250 leaderboard. The shares
gained 2.5p to 26p after house broker UBS Warburg slapped a "strong buy"
recommendation on the stock on the grounds that the violent sell-off which
followed the warning had been overdone.
"We believe the market's present valuation of MS is not reflective of the
underlying worth of the company," said UBS, which has set a 40p target
price.
Shares in advertising to exhibitions group Informa moved forward 13.5p to
152.5p on the release of first-half figures showing its core areas had
stabilised after a tough second half to last year. Although pre-tax profits
before exceptionals and goodwill were down on last year at pounds 16.2m,
they were still at the top end of what analysts were expecting.
Deutsche Bank issued a "buy" note, pointing out that at current valuation
Informa looks like a tasty takeover target. The FTSE 250 index shed 20.8
points to 4,692.8.
Among the smaller companies, Biocompatibles , the medical devices company
that sold its main business earlier this year, gained 2p to 100p on rumours
that Colin Blackbourn, the smaller companies guru at stockbroker Shore
Capital, picked up a large line of stock on Friday.
Weston Medical , the disgraced needle-free injection specialist, rose 0.5p
to 3.75p on vague bid speculation.
On the Alternative Investment Market, NWD jumped 0.065p to 0.16p on the back
of weekend press reports that director Alan Page wants to use the tiny shell
company as a vehicle to mount a bid for Cordiant , the troubled advertising
and communications group. Sources close to NWD reckon that Mr Page, who has
masterminded ad campaigns for Barclays and Greenpeace, has the funding in
place to make a move. Shares in Cordiant gained 1p to stand at 50.5p.