Gallaher to lobby Government on planned tobacco advertising ban

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The Independent Online
Gallaher, the UK's biggest cigarette group, yesterday added its voice to that of its arch-rival Imperial Tobacco in promising to fight Labour's decision to ban tobacco advertising. The group, which is expected to be valued at up to pounds 2.4bn when it floats at the end of this month, said it would be lobbying the new Government on the issue.

Peter Wilson, chairman and chief executive, said: "We do not see any justification for any erosion in our ability to compete. As far as we can see, there is no evidence that advertising has any effect on smoking." But in any case, Gallaher, famous for its oblique advertising for leading brands such as Benson & Hedges and Silk Cut, said it had been preparing for such a ban for several years. "If we do lose advertising, the enormous `equity' we have established [in our brands] will stand us in enormously good stead," he said.

The company refuses to reveal its advertising budget, but it has spent heavily building a 30,000-strong network of promotional displays and kiosks in retail outlets to evade any ban. The company also played down the likely effects of any litigation connecting smoking with cancer.

Mr Wilson's comments came as Gallaher unveiled details of the float, which will be by way of a demerger to the mainly US shareholders of its parent, American Brands, owner of famous names such as Whyte & Mackay whisky, Jim Beam Bourbon and Titleist golf clubs.

Hopes of an early bid for the group are likely to be dampened by the revelation in the prospectus that BAT Industries has signed an agreement not to mount a hostile bid for Gallaher before October 1999, unless a rival bidder jumps into the fray. The deal was forced on BAT after it requested details about Gallaher as part of a "very preliminary" bid approach last year. Gallaher has long been seen as a near perfect fit for BAT, which acquired its American Tobacco subsidiary from American Brands in 1994 but has no significant UK interests.

Gallaher also revealed that its directors will be entitled to "golden parachutes" worth two years' pay and bonus entitlement in the event of a take over. That suggests Mr Wilson, the highest-paid director with total emoluments of pounds 738,000 in 1996, could receive a pay-off of close to pounds 1.5m.

The company claims 39 per cent of all cigarette sales, just ahead of Imperial, and to have effectively invented the low tar segment with its Silk Cut brand.

Pre-tax profits have fluctuated around pounds 300m for the past five years, and despite more than halving the workforce since 1985, another 650 jobs may go when production is transferred from Hyde, near Manchester, to Northern Ireland over the next three to four years.

The demerger will be the first time a US company has demerged a mainly UK business and has already run into problems with the Inland Revenue, which is threatening to withdraw tax relief for interest payable on the pounds 945m debt being loaded on to the company at flotation.

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