Dogan, BAT Bid in Turkey's 3rd Attempt to Sell Tekel

Source from:  By Steve Bryant and Thomas Mulier Feb. 18 (Bloomberg) 02/19/2008

British American Tobacco Plc, the maker of Lucky Strike cigarettes, and Dogan Sirketler Grubu Holding AS, which controls Turkey's biggest media group, are among four bidders for state-run tobacco company Tekel, which is up for sale for a third time. Dogan bid with Citigroup Venture Capital International and a group of local tobacco wholesalers, the government's asset sales agency in Ankara said today. The other bids came from Limak, a Turkish group with interests in construction, and Strand Investment, made up of private equity fund Cinven Ltd. and local investors, it said. Turkey expects up to $1.8 billion for Tekel, Referans newspaper said today, without saying where it got the information. The sale is part of a $10 billion International Monetary Fund loan accord that aims to slow inflation and cut the state's role in the economy. The last effort to sell Tekel, in 2005, drew no bids. ``It's a price-sensitive issue, but after four years and twice being unsuccessful, the government is keen to privatize Tekel,'' said Ozgur Altug, economist for Raymond James Securities in Istanbul. ``It's very important for the government, which needs privatization revenue in order to improve the debt dynamic and the current-account deficit.'' Direct Investment The revived Tekel sale follows a record year for foreign direct investment in Turkey, which drew in $21.9 billion in 2007, helping finance a record current-account deficit of $38 billion. The sales agency sold $22 billion of government-owned assets between 2003 and 2007. Tobacco companies are making acquisitions to move into emerging markets as western European governments crack down on smoking. Japan Tobacco Inc. last year bought Gallaher Group Plc and Imperial Tobacco Group Plc this year purchased Altadis SA. Catherine Armstrong, a spokeswoman for BAT, confirmed the bid and declined to comment further. Shares in Dogan Holding rose 7.9 percent in Istanbul trading to 1.78 liras. The government plans to invite the bidders to an auction after holding separate talks with each of them. Tekel's cigarette brands make up 40 percent of the market in Turkey, according to the asset-sales agency. Altria Group Inc.'s Philip Morris International also makes cigarettes in Turkey, where more than 60 percent of adult men smoke, according to the World Health Organization. Public Smoking Anti-smoking campaigns in Turkey are gaining ground after parliament in January passed legislation to ban smoking in public areas, including restaurants and bars. The restrictions take effect in April, with an exception for bars, cafes and restaurants, which have 18 months to become smoke-free. Tekel employs 15,313 people and posted a loss of 339.7 million liras ($284 million) in 2006 on sales of 915.8 million liras, according to the sales agency. The government rejected a $1.15 billion offer for Tekel from Tokyo-based Japan Tobacco, the world's second-biggest publicly traded cigarette maker, in 2003. Tekel would be British American Tobacco's first major acquisition since the London-based company bought Italy's former state-owned tobacco company in 2003. Cinven manages a 6.5 billion-euro leveraged buyout fund. The buyout firm's other investments range from hospitals in the U.K. and Spain to Italia aerospace company Avio Holding SpA. Turkey's asset-sales agency opened the third round of bidding for Tekel in October. To contact the reporter on this story: Steve Bryant in Ankara at Sbryant5@bloomberg.net. Enditem