[Intl-tobacco] Turkey's Tekel May Be on the Block (Again)

[robert weissman]

Turkey hopes it's third strike lucky in bid to sell off state cigarette
giant

The Independent
Britain's BAT and Imperial Tobacco are potential bidders as takeover fever =
grips
the industry
By Abigail Townsend

Published: 28 May 2006

The Turkish government is understood to be gearing up for its third attempt=
 at
selling the state-controlled tobacco monopoly Tekel.

The move, should it go ahead, will be of major interest to cigarette compan=
ies
around the world, including the FTSE 100 giants British American Tobacco (B=
AT) and
Imperial Tobacco. Tekel controls the world's seventh-biggest cigarette mark=
et,
where more than 100 billion are smoked each year.

It will be the third time that Tekel has come on to the market. Japan Tobac=
co
International won an auction two years ago with a $1.15bn (=A3620m) approac=
h, but the
Turkish government decided to pull the sale. It was then forced to cancel a=
 second
auction after failing to attract any bids.

It is understood that many players are reluctant to pay the sort of price t=
hat the
authorities are seeking.

"They want to sell it but they've made a bit of a pig's ear of it so far," =
said one
industry insider. "There was a big gap between the expectations of the Turk=
ish
government and what the sealed bids were. Everyone will be watching this."

Paul Adams, chief executive of BAT, confirmed that the owner of Lucky Strik=
e and
Dunhill would be interested in a new auction for Tekel. We bid [last time],=
 we lost
that, and then the government decided to pull the sale. The question is wha=
t's for
sale and what the expectation is on price. We don't think it's worth more t=
han
other bidders are prepared to pay, and that's still an outstanding issue."

Imperial Tobacco also lost out in the first auction, but since then it has =
opted
for a greenfield approach towards the Turkish market and spent around =A340=
m opening
a factory in the country. However, its chief executive, Gareth Davis, has
previously said he wants to complete another significant deal before he lea=
ves the
company. Imperial's last major deal was the 2002 acquisition of Germany's R=
eemtsma
for Eur5.2bn (=A33.6bn).

A number of governments have sold off state-controlled tobacco groups in re=
cent
years. BAT, for example, spent Eur2.3bn acquiring Italy's ETI cigar and cig=
arette
business in 2003, beating offers from the Spanish group Altadis and a conso=
rtium of
Italian businessmen.

There has been a wave of consolidation in recent years in the tobacco secto=
r, which
is searching to replace declining volumes in Western markets as the number =
of
smokers continues to fall. The Spanish group Altadis is also thought to be =
a target
and has long been linked with Imperial.

Earlier this month Altadis reported first-quarter results that, as expected=
,
revealed market conditions in Europe were getting tougher. The company also
confirmed it was conducting a strategic review to maximise shareholder valu=
e, which
analysts widely took as signalling a break-up.

Altadis, which said it would look at "all options", will present the conclu=
sions of
the review at the interim results at the end of August.

UBS recently increased its price target on the stock, noting that while the=
re had
been no change in earnings estimates, it reflected a premium of around 15 p=
er cent
for any potential bid. It added that the industrial logic for the acquisiti=
on of
Altadis by Imperial was "clear".

However, BAT's Mr Adams said he would not be rushed into a deal, despite th=
e wave
of industry mergers and acquisitions.

"The very fortunate position that we're in is that we don't need to do a de=
al to
grow," he said. "If we can do one that provides a good return to shareholde=
rs, we
will look at it. We haven't ruled anything in or out."