BAT wins Turkish Tekel auction on $1.7 bln bid

ANKARA (Reuters) – British American Tobacco won an auction for Turkish tobacco firm Tekel yesterday with a $1.720 billion bid, as Ankara finally sold an asset it has been trying to privatize for some five years. BAT, the world’s No 2 cigarette company, beat other bidders including Turkish energy-to-media group Dogan Holding, which bid with Citi Venture Capital International (CVCI) and Turkish wholesaler Tutsab. Dogan stock fell 4 percent. BAT shares rose 0.9 percent to 18.85 pounds after the tender, which followed two unsuccessful Tekel auctions in 2003 and 2004. Turkey, a European Union candidate, is the world’s eighth-biggest cigarette market with Turks smoking some 115 billion cigarettes a year. Tekel, maker of Samsum, Maltepe, Tekel 2000 and Tekel 2001, which has a 13.7 percent market share, was one of only a few big tobacco assets around the world up for sale. The sale came just weeks after Turkey’s parliament approved a law banning smoking in public places – a major change in a country where some 60 percent of men smoke. Turkey also raised a special consumption tax on tobacco this year. Richard Hodgson, BAT director in charge of investment, told a news conference the ban would hit consumption but he expected the reduction to be somewhat less than 10 percent. «We hope that Tekel will be a profitable business for our shareholders,» Hodgson said. BAT will be the second-largest player in Turkey after the acquisition as its market share will rise to 36 percent from 7 percent, but still behind Altria, company officials said. BAT officials said Altria’s market share was 41 percent in 2007. BAT said the deal would result in annual costs savings of 30 million pounds ($58.9 million) by the third full year. There would be one-off costs of up to 50 million pounds in 2008 but the deal would enhance earnings from 2009, the firm said in a statement. The London-based group, which makes Dunhill, Kent, Pall Mall and Lucky Strike cigarettes, said the Tekel assets being acquired generated earnings before interest, tax, depreciation and amortization of $151 million in 2007. Protests The sale, fiercely opposed by workers, was an assets-only deal, with the package including six factories in Adana, Bitlis, Malatya, Samsun-Ballica and Tokat and a leased site in Istanbul. Unionized workers said yesterday they were occupying Tekel buildings and would not leave, in protest against the sale, which is the first major sell-off of the year and part of a broader, IMF-backed privatization program. A small group of workers laid a wreath at the hotel where the auction was held. The other two bidders in the tender were private equity firm Cinven in a consortium with a group of Turkish businessmen, and unlisted Turkish builder Limak Insaat in consortium with a private investment fund of Morgan Stanley.