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American Tobacco Sold to B.A.T. Industries for $1 Billion

December 22, 1994

STAMFORD, Conn. (AP) _ B.A.T. Industries PLC on Thursday finalized its $1 billion buyout of American Tobacco Co. after B.A.T. placated federal regulators by agreeing to sell up to nine cigarette brands.

The Federal Trade Commission had gone to court to stop the deal, arguing that it would significantly reduce competition in the U.S. cigarette market.

The agreement requires B.A.T. to sell six discount cigarette brands: Montclair, Riviera, Malibu, Bull Durham, Crowns and Special Tens.

The FTC also can order B.A.T. to sell three full-price brands - Tareyton, Silva Thins and Tall - and the American Tobacco manufacturing plant in Reidsville, N.C., if regulators’ monopoly concerns haven’t been satisfied.

Under the agreement, the sales will apply only to the U.S. market. B.A.T. will retain international ownership of the brands.

B.A.T. subsidiary Brown & Williamson Corp. quickly consolidated its control of American Tobacco, announcing that chairman and chief executive Donald Johnston had left the company and that all former American Tobacco units report to B&W executives.

″It puts us in a stronger third position in the U.S. domestic market,″ Michael Prideaux, spokesman for London-based B.A.T.

″We believe we’ll be better able to compete with Philip Morris and Reynolds from a 17 percent market share position than we were with an 11 percent position.″

Louisville, Ky.-based Brown & Williamson makes Kool, Viceroy and Capri cigarettes. Of the discount brands to be sold, Montclair is the biggest with a 1 percent share of the U.S. market, selling about 4.5 billion cigarettes a year.

The purchase of American Tobacco brings brands such as Pall Mall, Lucky Strike and Tareyton cigarettes to B.A.T.

B.A.T. said the purchase will force it to set aside $150 million to $200 million of its profit this year for restructuring costs.

American Brands said the sale would allow it to focus on distilled spirits, hardware, office products and leisure products, which the company says have greater long-term growth potential.

The company owns brands such as Jim Beam and Old Grand-Dad bourbons, Gilbey’s gin and vodka, Master Lock hardware and Titleist golf equipment.

American Brands spokesman Roger W.W. Baker said the company will use the proceeds from the sale for debt reduction, strategic acquisitions and stock purchases.

Before the agreement was reached, the FTC had argued that B.A.T.’s acquisiton of American Tobacco would combine the third and fifth largest of the six major U.S. cigarette manufacturers, increasing the likelihood of anticompetititive conduct in the market.

Bonnie Jansen, FTC spokeswoman, said the divestitures must be approved by the commission.

The FTC told the court that the merger would result in three companies controlling more than 90 percent of the market.

In November, American Brands announced that it has also reached and agreement to sell its Franklin Life Insurance business to American General Corp. for $1.17 billion.

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