LONDON, Jan 11: Two of the biggest names in the world cigarette market announced plans to merge on Monday in a 13 billion pound ($21.33 billion) deal which unites British American Tobacco Plc and Rothmans International.The enlarged group will retain the British American Tobacco name (BAT) and will be 35 per cent owned by Swiss-based luxury goods group Compagnie Financiere Richemont AG and South African investment group Rembrandt.Richemont and Rembrandt, both effectively controlled by South Africa's Rupert family, currently own Rothmans, with two-thirds and a third of the company respectively.The deal brings together the second and fourth largest international cigarette companies in the world, with a combined volume in 1997 of over 900 billion cigarettes and a worldwide market share of 16 per cent.BAT's major international brands include State Express 555, Lucky Strike, Kent, Benson & Hedges, Players and Pall Mall. Besides its eponymous Rothmans brand, Rothmans' portfolio includes Dunhill, PeterStuyvesant, Winfield and Pall Mall. ``Achievement of our vision to become the world's leading international tobacco company,'' BAT chairman Martin Broughton said in a statement.``It will enable us to play to our proven strengths in maintaining a portfolio of brands, while shifting resources to the premium international brands sector which enjoys higher margins,'' he added.BAT shares leapt 10 per cent to 598P in early trade in London after news of the deal broke. Rembrandt shares added three per cent in Johannesburg while Richement advanced to a new high for the year in Zurich.Bill Ryan, Rothmans chief executive, will join the BAT board as deputy managing director while Johann Rupert and Jan du Plessis will become non-executives. Rupert is chief executive of Richemont and chairman of Rembrandt.The merger is conditional on regulatory and shareholder approval.Completion is scheduled for the second quarter of the current year. The enlarged group will have leading positions in Latin America, Africa,Asia and Australasia plus an improved presence in Western Europe.BAT said its margins would improve as the injection of Rothman's strong international brand portfolio would increase the proportion of sales from premium and international brands to around one- third of the total.BAT said the deal would enhance underlying earnings per share, before amortisation of goodwill, in the year ending December 2000. Annual cost savings of at least 250 million pounds are expected from the third year and one-off costs of some 400 million are seen in achieving these.Richemont and Rembrandt's 35 per cent holding in the company is valued at some 4.6 billion pounds, based on BAT's closing price on Friday of 541 pence per share. The holding will be 25 per cent in ordinary shares and 10 per cent in convertible redeemable participating preference shares. Under a special agreement, Richemont and Rembrandt's voting interest will be limited to 25 per cent. Rupert said ``the long-term interests of the Rothmans group are bestserved by being part of a larger tobacco business which will have enhanced market positions and greater scale of operations''.
