/ 17 June 2009

BAT eyes Asia boost from $494m Indonesia deal

British American Tobacco (BAT) bought a majority stake in a top Indonesian cigarette firm on Wednesday, lifting its share in the world’s fifth-largest and fast-growing market as it looks to offset flat sales elsewhere.

BAT, maker of Dunhill and Lucky Strike cigarettes, said it paid $494-million for an 85% stake in PT Bentoel Internasional Investama, Indonesia’s fourth-largest cigarette maker by volume, and would buy up the remaining shares by the end of August.

London-based world number-two cigarette maker BAT, like other major players, is looking to expand in growing emerging markets as Western ones are hit by the effects of higher taxes, smoking bans and restrictions on advertising.

”The purchase … makes sense as Indonesia cigarette [market] is dominated with kretek [clove], which accounts for around 93% of total cigarettes consumed,” said Jakarta-based analyst Ella Nusantoro of Citigroup in a note to clients.

”The remaining 7% is white cigarettes, which are dominated by Philip Morris and BAT,” she said.

Bentoel sells both plain tobacco cigarettes and traditional clove-flavoured, or kretek, cigarettes under brands such as Bentoel, Star Mild, X-Mild and Country, and has 7% of Indonesia’s 250-billion annual cigarette market.

BAT’s Indonesian unit, PT BAT Indonesia, currently has a 2% market share, largely from its Pall Mall brand, but Wednesday’s deal will boost BAT to number-four, behind Philip Morris International’s HM Sampoerna business, which has a 27% share, Gudang Garam with 22% and Djarum with 21%. — Reuters