Local buyer for Tekel?
LONDON – Turkey is lining up a local buyer for state-owned Tekel Cigarette, valued at over $1 billion, but is first checking if BAT or Japan Tobacco may pay more, sources close to the situation said yesterday. Turkish authorities plan to launch an auction in October, and a London roadshow this week is aimed at kick-starting the much-delayed privatization, but the sources said a local bid was favorite, as when the government sold Tekel’s spirits unit to a Turkish consortium for $292 million in February 2004. After failing to sell Tekel for four years, Turkey is keen to strike a quick deal by year-end, but Tekel’s falling cigarette market share is making British American Tobacco Plc and Japan Tobacco wary, the sources added. «We believe Turkey has a local consortium buyer lined up, but is running an auction just to check if it can get a higher price,» said one source close to the auction. Turkey is the eighth-biggest cigarette market in the world, with Turks smoking 103 billion cigarettes a year, and Tekel is one of few cigarette assets around the world up for sale. Broker JP Morgan values Tekel at $1.0-1.6 billion. Investment bank Citigroup is advising Turkey on the sale, and together with Turkish Finance Minister Kemal Unakitan and Tekel officials, is meeting this week with potential buyers in London over the future of the former monopoly cigarette maker. Turkey is telling potential buyers they can pay for Tekel in tranches, suggesting a local buyer with less firepower than BAT or JT might be interested. Final sealed bids are due to be submitted by December 3, the sources said. But BAT and JT will be wary, the sources said, given the government’s two failed attempts to sell Tekel, its shrinking market share and uncertainty what assets are up for sale. Tekel has six factories but at least two have not produced cigarettes for years, they added. «We do not comment on individual cases in relation to our M&A strategies. Our current priority is the integration of Gallaher,» JT said in statement after the Times newspaper reported JT was set to bid $1.5 billion in the next six weeks. JT acquired British-based Benson & Hedges and Silk Cut cigarette group Gallaher this April for 7.5 billion pounds (-10.7 billion). A BAT spokesman said, «We will take a look, but whether we bid depends on what is on offer.» Other sources familiar with the situation have said South Korea’s KT&G and Britain’s Imperial Tobacco were interested, but analysts say BAT and JT, the world’s second- and third-largest cigarette companies after Altria, will be the most likely to bid. Turkey is keen to push ahead with the Tekel sell-off after the July parliamentary election in which the pro-business Justice and Development Party (AKP) was re-elected and as Tekel’s market share has fallen to around 40 percent according to official data from around 60 percent in 2001 when the privatization was first mooted. But analysts put Tekel’s market share at 34 percent, and it has recently lost first place to Marlboro maker Altria with 43 percent, while Japan Tobacco has 11 percent, BAT 7 percent and the world’s No 4 Imperial Tobacco just over 2 percent. Turkey has twice tried to sell Tekel in 2003 and 2004. In the first, JT placed the highest bid at $1.15 billion, while sources said BAT offered $700 million, but Tekel canceled the sale due to the low values. In 2004 no bids were made. JP Morgan analyst Erik Bloomquist sees BAT and JT as the likely strongest international bidders with Imperial Tobacco less likely as its -12.6 billion bid for Franco-Spanish Altadis has not been completed, while Altria cannot bid due to competition issues.
