British American Tobacco wins Turkish Privatisation Auction UPDATE

Source from:  LONDON, Feb. 22, 2008 (Thomson Financial delivered by Newstex) 03/04/2008

British American Tobacco PLC (AMEX:BTI) said it has won the auction for the cigarette business assets of Tekel, the Turkish state-owned tobacco company, with a successful bid of 1.72 bln usd. The transaction is subject to approval by Turkey's competition board and ratification by the Turkish Privatisation High Council. The deal's completion is expected later this year, BAT said. The deal, if successful, will lift BAT's share of the Turkish market to 36 pct. Tekel's brands account for around 32 bln cigarettes, or around 29 pct of the market, and the company has estimated EBITDA earnings of 151 mln usd in 2007, BAT said. Annual savings of around 30 mln by the third full year are estimated for the enlarged business, driven largely by improvements in the supply chain and savings in administrative costs, BAT said. BAT predicts that the transaction will be earnings-enhancing by 2009. Paul Adams, BAT CEO, said: 'This investment, coupled with the country's rapid economic growth, will transform our position in the world's eighth-largest cigarette market.' Tobacco analyst Jonathan Fell at Deutsche Bank (NYSE:DB) commenting on the deal's importance to BAT said: 'At the end of the day BAT has spent money amounting to 2 pct of its market cap, and there is a limit to how significant that can be. 'However, once you take synergies into account, it looks as if the multiple they have paid is not extreme -- between 8 and 9 times EBITDA -- and this was a one-off opportunity to gain a large position in one of the top ten cigarette markets.' Fell said that the price paid had not increased significantly from 1.6 bln usd when the first round of bidding started. The other bidders included several local companies, including Dogan Holdings (backed by Citigroup (NYSE:C) Venture Capital International), the Limak construction company and Strand Investments. Tekel's estimated value at the start of the bidding process was around 1.8 bln usd. 'It is interesting that there were no other big tobacco companies in the second round, perhaps Imperial buying Altadis and Japan Tobacco Gallaher gave BAT a head start,' he said. jh1/rfw/jh1/rw Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News. Enditem