[Intl-tobacco] Korea: Harms of Privatization

[robert weissman]

More evidence of the harms of tobacco privatization comes from Korea, where=
 the recently privaized entity is now desperately seeking ways to raise pro=
fitablity, is improving the quality of its product, and undertaking new mar=
keting efforts (esp to battle for market share with foreign competitors).

KT&G Q2 profit beats fcasts, outlook strong
Reuters

July 20, 2006
By Kim So-young

SEOUL, July 20 (Reuters) - KT&G Corp. <033780.KS>, South Korea's top tobacc=
o maker,
posted a better-than-expected 16 percent rise in quarterly profit on Thursd=
ay on
growing sales of premium cigarettes and forecast a stronger second half.

KT&G, in which a group of U.S. investors led by Carl Icahn is increasing it=
s stake
for management control, also said it would announce a new business strategy=
 in
mid-August, including dividend payouts, share buybacks, and sale of non-cor=
e assets.


KT&G shares rose 1.6 percent to 58,000 won by 0427 GMT, but lagged the wide=
r
market's <.KS11> 2.7 percent gain as some investors had hoped the new strat=
egy would
come on Thursday.

The former state monopoly hired U.S. consulting firm Booz Allen Hamilton In=
c. in
April to advise on how to bolster returns for shareholders and fend off a p=
ossible
takeover by Icahn's group, the second-largest shareholder with a 7.66 perce=
nt stake.


"KT&G is already paying 50 percent of its net income in dividends, but ther=
e is
possibility it will come up with still higher dividend payout ratio to sati=
sfy
shareholders," said Hwang Ho-sung, an analyst at Woori Investment & Securit=
ies.

"The U.S. investors have not yet acted on their takeover offer and will pro=
bably
wait to see what KT&G is going to say in August before making any other mov=
es."

Icahn and partner Warren Lichtenstein have offered to buy KT&G for 60,000 w=
on per
share in the first foreign takeover bid for a major South Korean company, v=
aluing
the firm at $10 billion. They have yet to file a formal tender offer with S=
outh
Korea's financial regulator.

The investors are also urging KT&G to list its ginseng unit and sell vast n=
on-core
assets such as real estate.

KT&G earned a 156.1 billion won ($163 million) net profit in the second qua=
rter to
June, compared with 134.5 billion a year earlier and beating an average for=
ecast of
147 billion won profit compiled by Reuters Estimates.

Net profit was also lifted by KT&G's sale of its 43.7 percent stake in conv=
enience
store chain 'Buy The Way' for 40.3 billion won to local snack maker Orion C=
orp.
<001800.KS>.

The company said it expected better second-quarter net profit, as successfu=
l new
high-end products like "Esse Soon" cigarettes raise average selling prices =
in a
country where one in four people smokes, helping the firm regain market sha=
re it
lost to foreign firms such as British American Tobacco Plc. <BATS.L>.

KT&G is also turning from costly home-grown tobacco leaves to imported leav=
es from
China, Greece and Turkey, boosting margins.

For 2006, KT&G is expected to increase net profit by 10 percent to 569.5 bi=
llion
won, according to Reuters Estimates. That implies a second-half profit of 3=
16.9
billion won, up 3 percent from a year earlier.

Net sales were 602 billion won, versus 532.4 billion.

KT&G's stock rose 1.1 percent in the second quarter, against the wider mark=
et's 4.7
percent fall. The stock had already jumped 22 percent in the first quarter,=
 as the
high-profile interest of the big-name investors put a stock little known ou=
tside
South Korea on the map internationally.

Credit Suisse Group estimates if KT&G spins off its ginseng unit and other =
non-core
assets, the company would be worth 10.6 trillion won ($11.14 billion) -- co=
mpared
with the latest market value of $9.71 billion.

(Additional reporting by Cheon Jong-woo)

($1=3D957.5 Won)

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