ACCC accepts cigarettes divestiture

The Australian Competition and Consumer Commission has accepted a court-enforceable undertaking for divestiture of cigarette and roll-your-own tobacco brands to Imperial Tobacco Group PLC to address the ACCC's concerns about the effect on Australian competition of the proposed world-wide merger between British American Tobacco PLC and Rothmans International BV.

Imperial Tobacco is a major British-based tobacco company that sells its tobacco products in over 70 countries and will pay $325 million to acquire cigarette, roll-your-own tobacco and cigarette paper brands from the merged group in Australia and New Zealand.

The divestiture follows the ACCC's decision in March 1999 that the proposed merger was likely to breach section 50 of the Trade Practices Act 1974 by substantially lessening competition in the Australian cigarettes market.

BAT has a 67% interest in the Australian cigarette manufacturer, WD & HO Wills Holdings Limited, and Rothmans International BV has a 50% interest in the Australian cigarette manufacturer, Rothmans Holdings Limited.

"The merged group has undertaken to sell a portfolio of cigarette brands, roll-your-own tobacco and cigarette paper brands to Imperial Tobacco", ACCC Chairman, Professor Allan Fels, said today.

"The divestiture will maintain three competitors in the cigarette market and means the merged group will have a market share of 44%, rather than 61% if the merger had proceeded without the ACCC's intervention.

"Imperial Tobacco will have a 17% share of the cigarette market, including a brand in the premium segment that will benefit from the change to the per-stick excise system for cigarettes in November 1999.

"Also, Imperial Tobacco has Virginia-blend brands in overseas markets which it may introduce to the Australian market."

Imperial Tobacco will operate an independent telesales facility for receiving orders from customers and will employ an independent field sales force. Imperial Tobacco will also be implementing changes to the divested brands to ensure they remain competitive after the change to the per-stick excise system.

The ACCC has agreed to treat the identity of the divested brands as confidential until they are publicly announced by Imperial Tobacco or the merger parties.

The ACCC recognises that in concentrated industries, such as the tobacco industry, there is the incentive for coordinated conduct between competitors and for the exercise of market power against small retail and wholesale businesses. The ACCC will monitor the tobacco industry in this regard.