Merger for tobacco giants
Tuesday January 12, 1999
Two of the world's biggest cigarette companies - Rothmans and British American Tobacco - launched a surprise £13 billion merger yesterday, bringing together brands such as 555 State Express and Dunhill in an attempt to unseat Philip Morris, the maker of Marlboro, as the global number one.
The combination of BAT, which is already the second biggest tobacco company, and Rothmans, the fourth largest, will create a group selling more than 900 billion cigarettes a year.
.. the merger aims to save about £250 million a year, much of which will be achieved through redundancies from the combined 70,000 workforce, roughly 5,500 of which are based in the United Kingdom.
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They claimed that competition in the tobacco industry meant employment attrition was a reality with which the business had been coping for years. Some industry sources suggested, however, that more than 1,250 jobs worldwide could be at risk.
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Rothmans, whose brands also include Peter Stuyvesant, is controlled by the wealthy South African Rupert dynasty, which will become a 35 per cent shareholder in the enlarged group.
Together, BAT ... and Rothmans will sell one in six of the 5.6 trillion cigarettes consumed worldwide each year. The group will have a strong position in huge but mature markets such as Europe and America, where profits are still growing but consumption is stagnant.
*** NB NB **** But its real strength will lie in emerging markets such as Latin America and the Far East where smoking is still a growth business and where consumers are likely to trade up to more expensive so-called international brands as their economies become richer. In some markets such as Africa, cigarettes are sold individually in times of hardship to help ensure that even the poor are able to continue their habit.
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Experts said the huge merger could act as a catalyst for a much bigger reshuffle among the world's big tobacco companies, most of which tend to be dependent on domestic markets and will find it difficult to compete with Philip Morris and a strengthened British American group in global markets. The industry is also labouring with huge overcapacity sparked by an enthusiastic expansion into Russia and eastern Europe.
Chris Burford
London