[Intl-tobacco] BAT says Canada arm is in danger

[robert weissman]

Financial Times  (London, England)
October 22, 2005 Saturday
Pg. 18
BAT says Canada  arm is in danger TOBACCO
By LISA URQUHART



   British American Tobacco has admitted that its Canadian business
could face bankruptcy following a change in Canadian law that would
allow individual provinces to sue the group and other cigarette
manufacturers for past and future health care costs.

   The legislation, which was passed last month, mirrors the Master
Settlement Agreement of 1998, in which US tobacco giants agreed to pay
Dollars 246bn over 25 years to US states to settle state lawsuits.

   BAT said the ruling would spark "the mother of all legal battles"
that could  go on for years, involve countless appeals and "could
liquidate the business". BAT's Canadian subsidiary, which is called
Imperial Tobacco Canada, accounts for 10 per cent of group profit. Last
year, BAT reported full-year pre-tax profit of Pounds 1.87bn.

   The ruling has been followed by a separate class action lawsuit filed
by  smokers in Quebec, who are seeking up to CDollars 17.8bn (Dollars
8.48bn) from all the leading tobacco groups on behalf of the 1.78m
people addicted to tobacco in the state.

   So far, BAT's shares have not been hit by the spectre of litigation
because it is expected that it will take between five and 10 years for
any cases to be decided.

   The admission of the possible demise of the Canadian business came as
BAT announced plans to stop manufacturing in the country. But rather
than being a result of the potential litigation, BAT said the decision
was based on a decline in demand for its products that has seen the
group's volumes in the country
fallby 38 per cent in the past 10 years.

   The end of production in Canada will see BAT close a cigarette
factory in Guelph, Ontario, in 2006 and itsleaf processing operations in
Aylmer, Ontario, in 2007, with the loss of 650 jobs.

   BAT, which is moving production to its Monterrey plant in Mexico,
said the move would cost it Pounds 200m during the next three years but
save Pounds 40m a ear once the operation was complete.

   Cigarette consumption in Canada has fallen sharply in the past five
years as  the government has repeatedly raised taxes and introduced
smoking bans.
   In July, BAT revealed that it would be withdrawing from UK cigarette
manufacturing with the closure of its Southampton site.

   In a separate announcement yesterday, BAT said it had increased its
stake in  Skandinavisk Tobakskompagni from 26.6 per cent to 32.3 per cent.

   BAT shares closed 5p higher at Pounds 11.73 yesterday.