Cigarette Firms Announce Merger

LONDON (AP) -- British American Tobacco, the world's second biggest cigarette company, is buying the fourth largest, Rothmans, for about $7.5 billion in stock.

The deal would solidify BAT's position behind Philip Morris Cos., the U.S.-based maker of Marlboros and the world's biggest tobacco concern.

The new firm, which will retain the name British American Tobacco PLC, will have a 16 percent share of the world market, according to a joint statement from the companies and the two shareholders of Rothmans.

Brands of the merged companies include Kent, Lucky Strike, Dunhill, Peter Stuyvesant, Rothmans, and Parisienne.

BAT is British-based and Rothmans International BV is based in the Netherlands. Together they produced more than 900 billion cigarettes in 1997, said the announcement.

Philip Morris produced about 950 billion cigarettes in 1997 and had about 18 percent of the world market, according to Martin Feldman, tobacco analyst for Salomon Smith Barney.

``This merger represents a major step forward in the achievement of our vision to become the world's leading international tobacco company,'' BAT chairman Martin Broughton, who will chair the merged company, said at a London news conference.

There had been specuclation BAT was talking about a deal with RJR Nabisco Holdings' R.J. Reynolds Tobacco Co., No. 3 in the international market, but Broughton said, ``This is the best alternative available to us. It gives us clear leadership in the emerging markets. The Reynolds deal wouldn't give us that.''

``Collectively it's more attractive for us and Rothmans,'' he added.

A BAT spokesman said there would be some job losses, but that it was too early to say what they would be.

Rothmans' joint owners, the Swiss-based Compagnie Financiere Richemont AG and Rembrandt Group Ltd. of South Africa, will own 35 percent of the new company. Richemont owns two-thirds of Rothmans, while Rembrandt holds one-third.

Both companies say they aren't looking to sell their stakes.

``We wish to continue this involvement by holding long term,'' said Johann Rupert, chief executive at Richemont. He said the companies had rejected the offer of a cash alternative.

BAT and Rothmans said the merger, subject to approval by authorities and shareholders, should be completed by the end of June.

The merger gives the enlarged group leading positions in 55 markets, and is likely to come under the scrutiny of Western European and Asia-Pacific regulatory authorities.

BAT said regulatory approvals may delay completion, but will not stop it.

``A second-quarter completion may prove to be a bit optimistic,'' Broughton said. ``But we don't expect there to be major changes forced upon as by any regulators.''

BAT last year merged its financial arm with Zurich Insurance. With the Rothmans merger, it has found a solution for its tobacco business, a sector that has come under mounting pressure in markets including the United States.

Broughton said that without that move, designed to specialize the business into its core divisions, today's plans would have been impossible.

In a joint statement, the companies and shareholders said the merger ``increases proportion of sales volume derived from international brands, which will improve overall margins.''

``Significant cost savings'' would amount to a minimum about $412.5 million annually in the third year after the deal closes, they added.

``In the tobacco business, big is beautiful,'' said Ronald Wildmann, an analyst at Bank Leu AG in Zurich. ``There are big potential synergies in production, marketing and distribution.''