[Intl-tobacco] BAT Considers Buying Out Brazilian Unit Souza Cruz

[robert weissman]

BAT Considers Buying Out Brazilian Unit Souza Cruz
Bloomberg News

July 20, 2006

July 20 (Bloomberg) -- British American Tobacco Plc, the world's second-largest
publicly traded cigarette maker, said it is considered buying out its Brazilian unit
Souza Cruz SA, whose shares held by the public are worth about $1.25 billion.

Souza Cruz said in a regulatory filing dated July 17 that its main shareholder,
which is owned by BAT, has ``periodically evaluated' the possibility of buying out
the Rio de Janeiro-based company. BAT owns 75 percent of Souza Cruz, which has a
market value of the equivalent of $5 billion, Bloomberg data shows.

``It's standard business practice to assess our arrangements,' Catherine Armstrong,
a spokeswoman for the London-based maker of Lucky Strikes, said today. She added
that no decision has been made and ``it doesn't mean anything more than that.'

Tobacco companies have been expanding in developing countries as the U.S. and
Western Europe increase regulations and taxes on cigarettes, weighing on
consumption. Souza Cruz sells 71 percent of the cigarettes in Brazil, with brands
such as Derby, according to Michael Smith, an analyst at JPMorgan Chase & Co.

Souza Cruz shares rose 5.1 percent July 14, the last trading day before the
regulatory filing. The filing was a response to the stock market regulator about the
gain in the shares, Armstrong said.

BAT gets a third of its Latin American earnings before interest and tax from Brazil,
JPMorgan's Smith said in a report. BAT got 7 percent of its total operating profit
from the unit last year, Smith said, adding he expects BAT could buy out the
remaining 25 percent stake if it makes ``economic and political sense.'

The number of cigarettes that were sold legally in Brazil rose 2 percent to 128
billion in 2005 as the government is increasing efforts to stop smuggling, according
to JPMorgan.

Antonio Monteiro de Castro Filho, BAT's Chief Operating Officer, worked as chief
executive officer of Souza Cruz during the 1990s.

To contact the reporter on this story:
Thomas Mulier in Madrid at  tmulier@bloomberg.net <http://questmail.futurequest.net/src/compose.php?send_to=tmulier%40bloomberg.net>.

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