BAT consortium acquires Italian state tobacco supplier

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British-American Tobacco's Eu2.32bn ($1.6bn) bid for Italian state-owned tobacco supplier Ente Tabacchi Italiani has been accepted. BAT, with local partners FB Group and Axiter beat stiff international competition, and will become the second largest supplier in the local market.

British-American Tobacco's Eu2.32bn ($1.6bn) bid for Italian state-owned tobacco supplier Ente Tabacchi Italiani (ETI) has been accepted, the company revealed today. BAT, with local partners FB Group and Axiter, won the auction against stiff international competition from the likes of Swedish Match and Altadis, and will become the second largest supplier in the local market, adding ETI's Toscano and MS brands to its own portfolio, which includes the global drive brands Lucky Strike, Pall Mall, Kent and Dunhill.

As part of the deal the BAT consortium takes control of ETI subsidiary Etinera, a distributor responsible for supplying most manufacturers' brands to Italian tobacconists. In a statement BAT said that it did not expect the company to continue distributing brands from other suppliers following the deal. The decision could have serious implications for other suppliers' share of Europe's second largest market. In particular Philip Morris' existing distribution agreement with Etinera may be scrutinized as the supplier may be unwilling to contribute to the business of its largest rival, a BAT source told TRW.

BAT chairman Michael Broughton said that he expected the deal to create synergies approximating to Eu35m ($40.2m) annually by 2007. "This strategically important investment will transform our presence in one of Europe's largest tobacco markets," he said. "The price we are paying is higher than the market has been expecting but it reflects the detailed financial information we have received, the discussions we have had with ETI's management and our view of the long-term prospects for the business and synergies that can be achieved. We got a good deal at a fair price."

ETI sold more than 26bn cigarettes in 2002, representing 26% of the Italian market. It also has almost 40% of the country's cigar sales. In the year to 30 September 2003, ETI is expected to report operating profit of Eu190m ($237m) up 31% from Eu145m ($176.8m) in 2002.

Completion of the transaction is subject to approval by the European Commission.

See travelretailworld and DFNI August 1 for more comment and analysis of this important deal.