BAT strikes European deal with US rival

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THE CIGARETTES and insurance giant BAT Industries is giving up the Continental European ownership of Benson & Hedges in exchange for pounds 135m and the French rights to the Lucky Strike and Pall Mall cigarette brands, writes Paul Durman.

The deal with American Brands, which owns the Gallaher tobacco business, accompanied a warning from BAT that its first-half profits would be dollars 75m ( pounds 50m) lower because of the fierce price war in the US cigarette industry.

US wholesalers have been running down their stocks of premium brand cigarettes in the expectation of price cuts. Kool, BAT's menthol brand, was badly hit with sales falling 35 per cent, although less than half of this was blamed on destocking.

A BAT spokesman said the dollars 75m reduction in profits was a one-off impact this year. Orders for Kool were starting to move forward again. BAT, which does not value its brands on its balance sheet, will take the pounds 135m from the brands swap as a capital profit. It said the net trading profit foregone was about pounds 8m.

The deal gives both BAT and American Brands strategic Europe-wide control over important brands, beneficial in the European single market.

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