[Intl-tobacco] Global giants square up in Turkish tobacco sale

[Robert Weissman]

UPDATE 1-Global giants square up in Turkish tobacco sale - Reuters
 October 24, 2003

 Mark Bentley
 Ankara - Global cigarette giants squared up on Friday in the bidding
for Turkey's state-owned Tekel, which has a majority share in the
world's sixth largest tobacco market. British American Tobacco (BAT),
Altria and Japan Tobacco (JT) head a list of seven possible buyers for
Tekel ahead of a Friday deadline for initial bids.

 Turkey's fast-growing tobacco market makes Tekel an attractive prospect
for the world's leading players, which face sluggish sales in western
Europe and the United States, and the sale could raise up to 2.7 billion
euros ($3.1 billion) for Turkey's lumbering sell-off programme, analysts
say. Turkey targets a minimum two-billion-euro sale.

 Tekel owns six tobacco factories in Turkey and says it controls nearly
60 percent of the local market, but its market share is slipping because
of increased foreign competition. The company's net sales totalled
around 1,200 trillion lira (some $800 million) in 2002. It made an
operating profit of 118.8 trillion lira ($80 million) in the first
quarter of 2003.

 "It's a very strong cash-flow business. Yes, there will be bids and the
price will be good. How good is difficult to say," said Atif Cezairli,
equities analyst at ING Barings. Turkey's privatisation head Metin Kilci
told Reuters on Thursday the names of the bidders will not be announced
until early November once revised offers have been made.

 An initial bid deadline for leading Turkish oil refiner Tupras also
expires on Friday as Turkey seeks to raise around $2 billion in cash
revenues from privatisation this year. Bid envelopes for Tekel and
Tupras will be opened on Monday, but no details of the bids will be
announced then, a privatisation official said.

 The government hopes to wrap up the technical aspects of both sales by
the end of December. Tekel employs 30,000 people in cigarettes and
beverages. The beverages arm is being sold off separately and is
expected to fetch a fraction of the price of its tobacco operation.

 Altria, which owns Philip Morris and makes top brand Marlboro, is a
favorite to purchase Tekel because of the recent growth of U.S. brands
-- the firm is already the leading buyer of Turkish oriental tobacco.
But Altria may need to seek a partner for a  successful bid because
Turkish regulations preclude any single buyer from gaining a dominant
position in the Turkish market. Altria already has a 28 percent share
via Philip Morris International. "It's difficult to say if Philip Morris
(Altria) is in the running because of the Turkish monopoly regulations.
They probably don't want the other bidders to know even if it's not,"
Cezairli said.

 JT, with 10 percent of the Turkish market, has shied away from
acquisitions since buying RJR International in 1999. JT produces Mild
Seven, the world's number two brand after Marlboro, and owns Camel,
Winston and Salem brands outside of the United States. Meanwhile BAT,
the world's second-largest tobacco group, is on the acquisition trail
after buying Italy's ETI for 2.32 billion euros in July. It opened a
factory in Turkey last year and has a one percent share here with Kent,
Viceroy and Pall Mall brands.

 The other four possible bidders in the auction are Britain's Imperial
Tobacco PLC, Altadis, South Korea's KT&G and the Turkish tobacco
retailers association. Turkey's competition board has said it might
place some restrictions on how certain cigarette brands of Tekel are
handed over if the tender result means that any single firm gains a
dominant share of cigarette sales in Turkey.
 (Additional reporting by Hatice Aydogdu)