BAT heading for twin-track future

IT LOOKS like commercial suicide: to spend dollars 1bn ( pounds 660m) on buying a business in an industry that is about to be heavily taxed, in a country that is baying for its products to be banned.

But that is what the laid- back Martin Broughton, chief executive of BAT Industries, has done in snapping up American Tobacco, maker of Lucky Strike and Pall Mall cigarettes in the United States.

'The new tax will happen,' conceded Mr Broughton, 'though we don't know how much it will be. As for prohibition, that's a non-starter. All it achieves is black markets and no revenue for the government.'

But Mr Broughton sees the deal generating the cash to finance rapid expansion in former Communist territories. American Tobacco is churning out profits of more than dollars 160m a year, and there will be savings from combining overheads and sales forces. With BAT's existing US operations, the two businesses will have nearly a fifth of the American cigarette market.

Meanwhile, BAT is negotiating to build or buy cigarette factories in Russia, Uzbekistan, Kirgizstan and, perhaps most surprising of all, still-Communist Vietnam.

The group is also negotiating with ITC, one of India's biggest companies, to set up joint ventures in tobacco and life assurance.

'It's a wild generalisation,' Mr Broughton explained, 'but in Asia and Africa you are talking about populations that have difficult lives and few pleasures. Smoking, beer and sex - that's about it. And the liberalisation of the former Communist countries has nearly tripled the world tobacco market available to us.'

As it will take possibly 20 years before spending in these countries catches up with the West, however, BAT will depend on America and Europe continuing to puff away to keep its coffers topped up.

Not all the money generated by the deal will flow into cigarette factories. An increasing amount is being earmarked for the group's financial services operations.

Last week, BAT's ambitions in that direction were highlighted by Lloyds Bank's bid for Cheltenham & Gloucester Building Society - one of a number of societies BAT has looked at, to complement its Eagle Star and Allied Dunbar insurance arms in Britain.

Financial services and tobacco are roughly the same size in BAT, and the plan is to keep them neck and neck.

'We would like two roughly equal businesses,' said Mr Broughton, who used to be chairman of Eagle Star and who - unlike his cigarette-loving chairman, Sir Patrick Sheehy - is no more than an occasional cigar smoker.

Although BAT has bought Eagle Star, Allied Dunbar and the US-based Farmers Insurance in the past dozen years, Mr Broughton admitted that the group had done little until recently to bring them into a cohesive operation.

That has changed, however, with the creation of Threadneedle Asset Management to house Eagle, Allied and their combined pounds 30bn of investment management activities. Paul Manduca, deputy managing director of Henderson Administration, has been recruited to run the investment side.

Mr Broughton said: 'There is a distinction in the City between the investment houses and the investment departments of insurance companies. The investment houses are the Premier League.

'Allied and Eagle's investment performance was very good, but I hope Threadneedle will now be seen as a leading investment house.'

If all goes well, it will then be rolled out across the world, like its highly successful counterpart at Prudential Corporation. UK retail savings is seen as one of a four-legged financial services strategy, with continental Europe, America and the Far East.

''We have a partner in Taiwan and have applied for a licence to offer life assurance there,' Mr Broughton reported. 'We are also seeking licences in India and China as soon as we are allowed.'

While America is largely a question of filling in and bolting on to Farmers, continental Europe is proving more problematical.

'We have been surprised to get considerably more opportunities there than we expected,' Mr Broughton said, 'but they all seem too expensive.'

On UK building societies, Mr Broughton disclosed: 'We have had a number of discussions with a number of societies at different times. None is at the level where there is any immediacy.

'All the players know we are interested. We have certain preferences and I would be surprised if any of them would contemplate a transaction without considering us.'

(Photograph omitted)

John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing

Other places that have held independence referendums
Life and Style

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'

Actors star in Woody Allen's 'Magic in the Moonlight'

peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's most starring part

Watch this commuter wage a one-man war against the Circle Line

...and the perfect time to visit them

We are phenomenally good at recognising faces; the study showed that humans have been selected to be unique and easily recognisable

Human faces unique 'because we don't recognise each other by smell'

Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
ebooksAn unforgettable anthology of contemporary reportage
Jonas Gutierrez (r) competes with Yaya Toure (l)

Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result

A male driver reverses his Vauxhall Astra from a tow truck

Man's attempt to avoid being impounded heavily criticised

Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
The Guildhall School of Music and Drama is to offer a BA degree in Performance and Creative Enterprise

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week