Batty buy?

17 July 2003

The AngloAmerican group paid 50% more than its rivals bid, yet faces the risk that Philip Morris will end a huge distribution contract. Altadis set the precedent for paying whopping prices in Morocco’s tobacco auction. Now BAT has done the same in Italy.

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British American Tobacco agreed to buy ETI, the Italian state tobacco company, for E2.3bn. ETI has a 26% share of the Italian market and – through its subsidiary Etinera – is responsible for the distribution of most tobacco products in Italy. Etinera distributes Philip Morris cigarettes, which account for 67% of the Italian market.

ETI is expected to report earnings before interest, tax, depreciation and amortisation of E190m for the year to September. It has net cash of E86m. BAT reckons it can cut E35m out of the yearly cost base by 2007.

BAT said that the acquisition will be financed out of existing resources, and is expected to be immediately earnings enhancing before the amortisation of goodwill.

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