Rothmans drops Indian unit plan

NEW DELHI, JUNE 19: Rothmans of Pall Mall of the UK today announced withdrawal of its controversial proposal to set up a 100 per cent sub...

NEW DELHI, JUNE 19: Rothmans of Pall Mall of the UK today announced withdrawal of its controversial proposal to set up a 100 per cent subsidiary in India following its global merger with British American Tobacco BAT. quot;Following the merger, Rothmans have become part of a bigger BAT organisation and a good working relationship already exists between BAT and its two associate companies in India,quot; Rothmans public affairs manager Mike Pavitt said in a brief statement.

Rothmans had proposed investments worth Rs 600 crore. It has therefore been decided to withdraw the Rothmans application for a 100 per cent subsidiary and the FIPB has been notified accordingly, the statement said. It is likely now that Rothmans will shut down its two liaison offices in India. The rules governing foreign investment in India specify that an MNC cannot hold stake in two parallel susidiaries. BAT already has a tie-up with ITC Limited.

The two cigarette majors, Rothmans and BAT, have reportedly decided that BAT, in the post-mergerscenario, will buy-out Rothmans stake in both domestic cigarette companies, ITC Limited and VST Ltd, in which Rothmans has a small stake. BAT will also decide on future strategies for India, which include launch of Rothmans brands in the country.

BAT owns 31.7 per cent equity in ITC while a 1.4 per cent stake is held by Rothmans. After the buy-out, BAT8217;s stake in ITC will go-up to 33.1 per cent. Similarly, BAT8217;s stake in VST will increase to 32.63 per cent from 32.2 per cent after its buy-out of Rothmans stake.

Rothmans application with the FIPB was mired in controversies over permitting multi-nationals to enter the cigarette manufacturing sector. The controversy also affected the fate of a proposal by Phillip Morris, the largest cigarette company globally, to set-up a 100 per cent subsidiary in India. The American company8217;s proposal is still pending with the Government.

The activities proposed by Rothmans, included helping tobacco farmers with new technologies, drew both strong criticism and supportfrom various quarters. While the pro-farmer lobbies supported the Rothmans proposal, there was opposition from others that the presence of MNCs in cigarette manufacturing would hit bidi workers amongst others.