South Africa: BAT Pays High to Invest in East

Source from:  Business Day 06/19/2009

GLOBAL cigarette giant British American Tobacco (BAT) said yesterday it would pay 494m for an 85% stake in Bentoel Internasional Investama, Indonesia's fourth-largest cigarette maker, and would buy up the remaining shares by the end of August. The group, 11% held by South Africans after it listed on the JSE when it was unbundled from Richemont and Remgro , said that assuming all the shares were tendered, the overall transaction would value Bentoel at 580m. BAT said the price was equivalent to 873 rupiah a share, a premium of 20% on Bentoel's closing price of 730 rupiah a share on Monday. BAT Asia-Pacific director John Daly said: "This transaction represents an excellent strategic opportunity to enter the very large and growing Indonesian kretek market, and will provide a platform for future growth." Kreteks are cigarettes made from tobacco and cloves, produced by machine or hand-rolled. The BAT group, which sells its products in more than 180 countries and is the leading cigarette manufacturer in SA, was looking to expand in growing emerging markets as western ones were hit by higher taxes, smoking bans and restrictions on advertising. The tobacco producer gets about half its profit from emerging markets. It is the JSE's largest traded company by market capitalisation of R568bn. The South African division has a 90% market share, and contributes more than R7bn to the government in taxes. About a third of Indonesia's 248-million people smoke, compared with 21% in the US, where the Senate this month voted to give drug regulators power to restrict tobacco. BAT got 56% of Bentoel from the Rajawali Group, controlled by billionaire Peter Sondakh, and the balance from other investors. Bentoel is the fourth-largest maker of kretek, trailing market leader PT HM Sampoerna, bought by Philip Morris International in 2005. Rajawali Group, based in Jakarta, helped eliminate debt at Bentoel after buying control in 1991. The group's investments include a charter airline, taxis and plantations. Indonesia is the world's fifth- largest tobacco market by volume, with sales of about 250-billion cigarettes a year, and a global top- 10 market by profit. The kretek segment accounts for 93% of the market. Bentoel sold 17,7-billion cigarettes last year, about 7% of the market. Bentoel earnings before interest, tax, depreciation and amortisation for the 12 months to March were 53m. Net debt was 164m. BAT's existing business, PT BAT Indonesia, had about 2% of the market, and competes only in the white cigarettes market. BAT's Indonesian unit, PT BAT Indonesia, has a 2% market share, largely from its Pall Mall brand, but yesterday's deal will boost BAT to number four, behind Philip Morris International's HM Sampoerna business, which has a 27% share, Gudang Garam with 22% and Djarum with 21%. Indonesia is the world's fifth- largest market after China, the US, Russia and Japan, but analysts say the deal is relatively small for BAT, and the near-term earnings effect should not be material. BAT said it bought the shares from several shareholders, including Rajawali Group, and expected to complete a tender offer for the rest of the shares by the end of August. With Bloomberg. Enditem