BAT Italian conquest raises Marlboro distribution dilemma

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Philip Morris may be forced to review its local distribution contract with Etinera following the acquisition of its parent company by by rival British American Tobacco

Philip Morris' Italian distribution agreement may be in jeopardy following rival British American Tobacco's purchase of state-owned tobacco supplier Ente Tabacchi Italiani last week. The deal included ownership of subsidiary Etinera, responsible for supplying tobacco products from many suppliers ? including Philip Morris - to Italy's tobacconists and airport stores.

A source close to the deal told TRW that Philip Morris was likely to review its agreement with Etinera if BAT, the company's closest competitor, took control of the distributor. Although Philip Morris has declined to comment on the future of the contract, the source insisted it would be ?very difficult indeed? for the manufacturer of Marlboro to find a local agent with similar access to the country's 58,000 licensed tobacconists.

?Philip Morris was never involved in the bidding,? said the source, ?but BAT was always going to be the problem winner for them. If you look at the other two bidders, there's the local consortium that would not have been viewed as a threat, and Altadis, with whom Philip Morris already operates distribution agreements in several countries. But the world's largest tobacco company may well think twice about having its products distributed by the world's second largest manufacturer.?

In BAT's announcement following the deal, chairman Martin Broughton said that the Eu2.32bn ($2.67bn) price tag for ETI did not take into consideration other suppliers continuing their contract with Etinera.