LONDON -- British American Tobacco PLC and Rothmans International said Monday that they are joining forces to create a global cigarette giant valued at over pounds 13 billion ($21.33 billion).
The enlarged group will retain the British American Tobacco name but will be 35 percent 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 compay respectively.
The deal brings together the second- and fourth-largest international cigarette companies in the world, with a combined volume in 1997 of more than 900 billion cigarettes and a worldwide market share of 16 percent.
The world No. 1 slot is occupied by U.S. company Philip Morris.
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, Peter Stuyvesant, Winfield and Pall Mall.
"This merger represents a major step forward in the 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.
Analysts welcomed the combination of Rothmans and BAT.
"There is very little duplication between the two. These are cash-cow businesses and if you can cut out costs, particularly in their growth areas, particularly in the third world, it's a wholly logical move," said Justin Urquhart-Stewart of Barclays Stockbrokers.
Annual cost savings of at least pounds 250 million are expected from the third year and one-off costs of some pounds 400 million are seen in achieving these.
BAT has focused on tobacco since merging its financial services operation with Zurich Group of Switzerland last year to form Allied Zurich PLC.
A major uncertainty hanging over the company was removed late last year when its Brown & Williamson U.S. arm and other tobacco majors agreed to a landmark settlement of health claims.
Completion of the merger 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 Rothmans' 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 amortization of goodwill, in the year ending December 2000.
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.
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