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|B.A.T Shareholders Approve Sale to Zurich Insurance
London, June 12 (Bloomberg) -- B.A.T Industries Plc's shareholders agreed to sell its financial services business to Switzerland's Zurich Insurance Co., sealing a $18.7 billion deal to create Europe's fourth-largest insurer and the world's second- largest tobacco company.
The maker of Lucky Strike, Kent and Pall Mall cigarettes -- second only to the U.S. food and tobacco company Philip Morris Cos. in cigarette sales -- will become British American Tobacco Plc. B.A.T shareholders will also get 43 percent of the newly created Zurich Financial Services AG, whose shares will be listed in Zurich and London.
The deal, which has already won approval from regulators and Zurich shareholders and is expected to be completed this fall, marks B.A.T's return to its tobacco company roots after two decades as a diversified holding company. British American Tobacco's aim is to surpass Philip Morris as world leader in cigarette sales by building on its 13 percent global market share, especially outside the litigation-plagued U.S. market.
Most of the world market is now open to us, following the collapse of communism and the liberalization of markets over the last decade,'' B.A.T Chief Executive Martin Broughton, who will be chairman of the tobacco company, told shareholders at its annual meeting on May 1. ``While the overall market is still growing slowly, there will be stronger growth in Latin America, Eastern Europe, and Asia, as these regions gain in prosperity.''
The stand-alone tobacco business will have more flexibility in borrowing money -- something that is difficult for insurance companies. The financial services units, meanwhile, will be freed from the share price volatility related to the tobacco business.
B.A.T's shares have been rocked by lawsuits against Brown & Williamson Tobacco Corp., its U.S. unit. Shares fell 4 percent yesterday after a Florida jury was awarded about $1 million in damages to the family of a Lucky Strike smoker who died of lung cancer -- the first time a jury has imposed punitive damages against a tobacco company in such a case.
B.A.T shares today fell 13 pence to 567p. Zurich Insurance shares fell 14 francs to 939 francs.
U.S. Is Different
An attempt by Brown & Williamson, Philip Morris and other top U.S. tobacco companies to settle their legal liabilities for smoking-related health problems and medical costs also fell apart in April. An agreement reached with state attorneys general in June 1997 was superseded by a tougher and costlier bill introduced into Congress by Arizona Republican Senator John McCain, leading the tobacco companies to walk away from the deal and take their chances in the courts instead.
Broughton has repeatedly assured shareholders that the tobacco company won't have to worry about similar legal problems developing outside the U.S.
One of the most important things I want to emphasize is my belief that the U.S. really is different,'' he told shareholders in May. ``The U.S. legal system has a combination of distinctive features, such as the availability of punitive damages, jury trials for civil actions, the availability of class actions, the ability of plaintiffs' lawyers to recover for themselves a significant part of any award and the lack of a `loser pays' rule.''
Zurich, meanwhile, will marry its insurance business with B.A.T units Allied Dunbar, Eagle Star, and Farmers Insurance and its Scudder Kemper asset management division with B.A.T's U.K.- based Threadneedle Asset Management. With $34 billion in annual premiums and $375 billion in assets under management, it will be the world's seventh-largest money manager and a rival to European pension and savings companies like France's Axa-UAP and Germany's Allianz AG.
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