Rothmans Holdings

Rothmans and Wills poised to control tobacco market

Ltd and WD & HO Wills were poised to take con trol of the Australian tobacco market following the planned merger of their parent companies in a Stg 13 billion ($A34.2 billion) deal.

British American Tobacco (BAT), the world’s second largest tobacco firm, and Rothmans International, the world’s fourth largest tobacco firm, announced they would join forces to form a group that would capture 16 per cent of the world tobacco market.

Australian listed Rothmans Holdings with the Winfield, Holiday and Dunhill cigarette brands - is 50 per cent owned by Rothmans International and commands a 34 per cent share of the Australian market.

While, WD & HO Wills - which manu factures Benson & Hedges, Horizon, Stradbroke and Export cigarettes - is 67 per cent owned by BAT, and has a market share of about 27 per cent.

The move by their parent companies prompted speculation the Australian sub sidiaries would soon follow suit.

The unlisted Philip Morris brand, the largest player in the Australian market with a 38.4 per cent share, would be pushed into second place if the Australian grouping

gets the go-ahead by Australian authorities.

Speculation that the Australian sub sidiaries would merge sent their share

prices soaring mid-January, with

Rothmans closing at an all-time high, gain ing 80.7 cents, or 6.93 per cent to $12.46.

Shares in WD & HO Wills jumped 41 cents, or 10.93 per cent, to $4.16 after hit ting a high of $4.20.

A combined Rothmans and WD & HO Wills would control about 62 per cent of the Australian market share and about 95 per cent of the New Zealand market, according to analysts.

However, the proposal must get approval from the Australian Competition and Consumer Commission (ACCC) which will be looking at a possible reduc tion in competition with just two players in the Australian market.

“We will be examining it because they are major players in the Australian ciga rette market,” an ACCC spokeswoman said.

“We will be looking at it under the merger or acquisition part of the act which deals with substantial lessening in compe tition”.

The ACCC had found such mergers unacceptable in the past and have not allowed them, but the companies could

argue that “Australia is not big enough to have three major players in the tobacco

industry with declining margins,” one ana

lyst said.

“The merger in Australia would present an opportunity for the two companies to develop a more competitive brand portfo lio, provide cost efficiencies and put the companies in a better position to respond

to the government’s major excise changes

to tobacco,” said Laura Knight, Wills’ head of consumer and regulatory affairs.

Rothmans chief executive Gary Krelle said that the board was currently looking at the deal and could not make any predic tions on what the outcome would be.

But he agreed that one “likely outcome” would be for further consolidation in the future.

A Philip Morris spokeswoman declined to comment on the merger.

Overnight, BAT said it may need to make a full off for the outstanding shares of Rothmans Australian-listed operations following its merger with Rothmans International. However, there were no details of what form this would offer.

A Sydney based analyst said that there would almost certainly be some consolida tion in the Australian subsidiaries and some of the brands that overlap could dis appear.

The analyst added that it was unlikely the companies would remain separately listed and the most probably outcome would be with Wills retaining the company name. (AAP) ■