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January 12, 1999 |
BAT-Rothmans merger sparks talk on impact on ITCIn keeping with the season of megamergers, British American Tobacco PLC -- the second largest tobacco company in the world -- and Rothmans International -- the fourth largest cigarette company -- have announced their coming together to form a cigarette giant worth over $21.33bn. The new entity will retain the name BAT. However, South African investment group Rembrandt and Switzerland-based luxury goods group Compagnie Financiere Richemont AG will pick up a 35 per cent stake. Both the companies are controlled by the Rupert family of South Africa who have the majority stake in Rothmans. BAT and Rothmans were estimated to have notched up a combined volume of over 900 billion cigarettes in 1997 or 16 per cent of the total market. ``This merger represents a major step forward in the achievement of our vision to become the world's leading international tobacco company," BAT chairman Martin Broughton said in a statement in London on Monday. ``It will enable us to play to our proven strengths in maintaining a portfolio of brands, while shifting resources to the premium international brands sector which enjoys higher margins." BAT has a presence in India by way of its 31 per cent stake in ITC Limited, the Rs 70 billion tobacco and hotels major. Industry analysts in Bombay and Calcutta said ITC will now brace up for a steady posture following the merger of BAT and Rothmans, though it is not expected to alter the equation between BAT and the ITC board of directors that has been stormy since the acrimonious ouster of K L Chugh as ITC chairman in 1996. Only, BAT's stake might go up to 33 per cent in ITC. ITC has a 30-year licence to make and sell BAT's foremost brands, Benson & Hedges and State Express 555. The merger might bring in Rothmans' famed cigarettes to India in a big way. But ITC's well-established brands won't suffer because of this, analysts said. BAT also holds a 31 per cent stake in Hyderabad-based off-form VST Industries. However, some observers said the cold BAT-ITC relations may improve under the effective control of the South African owners who are learnt to be adept at handling problems related to corporates in the developing and underdeveloped countries. Meanwhile, in Bombay, stockbrokers said though the ITC share price spurted on Monday, the development was not related to the merger but to heavy FII buying. However, there was talk that the merged entity might be tempted to up its stake in ITC through open market buying. Doubts were also expressed over the future of the Rothmans's proposal to set up a subsidiary in India.
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