BAT `considering demerger' decision by next autumn

BAT Industries, the tobacco and financial services conglomerate, is "actively considering" a de-merger with a decision expected in the autumn. Sources close to BAT said yesterday the company was looking at a variety of options, but one was a straight de-merger of the group which would give shareholders a share in both the tobacco and financial services businesses. Shareholders would then see part of their investment protected from the potential impact of tobacco-related litigation in the US.

It is understood that the main driver toward de-merger on the BAT board is Lord Cairns, the group's chairman. He is said to have made several comments in recent weeks which have indicated a softening of the company's line on the issue. Lord Cairns has spent this week in China and was due to return yesterday

The fresh information marks a further shift in BAT's stance. At the company's annual meeting last month Lord Cairns said the board had "an open mind" on splitting the tobacco and financial services businesses and that there were "no sacred cows". Just one month earlier he had said he "remained unconvinced" about the merits of a split.

There has been speculation that BAT would not consider its Allied Dunbar and Eagle Star financial services business to be a strong enough entity to be a stand-alone business. City analysts have suggested that BAT might merge its financial services interests with Abbey National, which is keen to expand. BAT would take a major stake in the bank in return.

Other suggestions include BAT acquiring Commercial Union or Legal & General prior to a de-merger.

Break-up talk escalated last December when it emerged that unsuccessful talks had taken place to merge BAT's financial services with Commercial Union.

BAT was keen to play down break-up speculation yesterday. It said it did not comment on market rumour and added that its position on any potential de-merger had not changed since its annual meeting.

BAT shares rose 10p to 559.5p yesterday. Abbey National jumped 25.5p to 961p.

BAT's tobacco brands include Lucky Strike, Kent and 555. The group's shares have been under a cloud due to uncertainties caused by litigation in the US. However, the shares received a boost earlier this month when RJ Reynolds, one of its key competitors, was cleared by a jury of causing the death of woman who had smoked its cigarettes for 30 years.

BAT has taken a tough line on any future negotiations over a comprehensive industry-wide settlement. "Even if a broad resolution cannot be achieved, the lawsuits (against the group in the US) will ultimately have no material impact on the financial condition of the group.

The company last month reported first quarter profits of pounds 591m. Tobacco profits were 2 per cent higher at pounds 363m. Profits in financial services were 3 per cent up at pounds 266m.