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BAT on the acquisition trail 

After five years of watching its competitors consolidate, British American Tobacco has come off the sidelines to do two deals in six days. BAT will spend a total of about £3bn on Tekel, the Turkish state tobacco company, and Skandinavisk Tobakskompagni, the cigarette arm of Denmark-based ST Group. Together the deals will increase BAT’s annual worldwide cigarette sales by 9 per cent by volume.

The timing is largely serendipitous. Turkey has tried to sell Tekel three times since 2003 and last week’s auction had been in the works for months. BAT has owned a third of privately-held ST since 1972 and has been eyeing the rest for years. But the two deals suggest that BAT’s management, which once proclaimed that tobacco deals were getting too expensive, now thinks prices are more reasonable. EDITOR’S CHOICE BAT confirms £2bn Nordic cigarette deal - Feb-28 BAT strikes it lucky once more - Feb-25 BAT win boosts Turkish presence - Feb-22 BAT among final bidders for Tekel - Feb-18 Strong day for London but not Imperial Tobacco - Jan-29 BAT struggles for air on fears over Richemont stake - Jan-23

On first blush, the judgement appears on target. BAT is acquiring Tekel and the ST cigarette assets for just over 11 times each company’s 2007 earnings before interest, taxes, depreciation and amortisation. That is less than the 12 times ebitda Japan Tobacco paid for Gallaher and well below Imperial Tobacco’s price for Altadis. Admittedly those deals were much bigger, but Tekel and ST fill important holes in BAT’s worldwide portfolio, giving it 60 per cent of the Scandinavian market and making it number two in Poland and Turkey.

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