BAT shares soar as City toasts Rothmans merger

SHARES IN British American Tobacco soared by more than 15 per cent yesterday as the stock market welcomed the group's surprise pounds 13bn merger with Rothmans International.

The shares rose by 84p to 625p, while shares in Imperial Tobacco also rose as analysts predicted that the deal would spark a wave of consolidation in the industry.

Analysts praised the logic of the deal which brings together the second and fourth largest tobacco companies in the world. The combined group, which will be known as BAT, will have a global market share of 16 per cent, within touching distance of arch-rival Philip Morris, which produces the Marlboro brand.

The deal assembles a powerful portfolio of cigarette brands. BAT makes State Express 555, Lucky Strike, Kent and Players as well as Benson & Hedges outside the UK. Rothmans makes Dunhill, Peter Stuyvesant and Winfield, as well as the Rothmans brand.

BAT said the two companies are a good geographic and cultural fit with Rothmans enlarging BAT's exposure to the higher-margin premium cigarette sector. "It has always been an element of our strategy to be number one. This deal takes us close, with leading positions in many markets," said Ralph Edmondson, BAT director.

The City sees costs savings as the key benefit of the deal. BAT anticipates pounds 250m of annual savings at a one-off cost of pounds 400m. This will lead to job losses but the group declined to specify how many or where they will fall.

In the UK Rothmans employs around 1,200 people in the North-east, split evenly between Darlington and Tony Blair's constituency of Spenneymore. BAT employs over 1,000 in Southampton and about 50 in Corby, Northamptonshire.

Jonathan Fell, tobacco analyst at Merrill Lynch, said: "It gives BAT critical mass in a number of markets as well as offering scope for cost savings. It seems like an obvious deal."

Justin Urquart-Stewart of Barclays Stockbrokers added: "There is very little duplication.These are cash-cow businesses and if you can cut out costs, particularly in their growth areas, particularly in the Third World, it's a wholly logical move."

The deal is being effected via the issue to Rothmans shareholders of 604.3 million ordinary BAT shares and 241.7 million preference shares which can be redeemed for a premium later.

Rothmans is owned by the Richemont and Rembrandt luxury goods companies, which are controlled by the South African Rupert family.

They will emerge with 35 per cent of the enlarged BAT group, although there is a standstill agreement under which they will only have 25 per cent of the voting rights. The remaining 10 per cent will be held though non-voting preference shares.

Richemont includes the luxury brands Cartier, Mont-Blanc and Dunhill which are held though its wholly owned subsidiary Vendome.

BAT expects the deal to receive regulatory approval even though the combined group will have more than 90 per cent of the South African market, over 80 per cent in Canada and just over 60 per cent in Australia.

Martin Broughton will be chairman of the enlarged group with Rothmans' chief executive Bill Ryan becoming deputy managing director.

Rothmans recorded operating profits of pounds 821m on net sales of pounds 3.2bn last year.

Outlook, page 15

Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
News
Image from a flyer at the CPAC event where Nigel Farage will be speaking
news
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower