ACCC opposes cigarettes merger

31 March 1999
British American Tobacco Plc's proposed world-wide merger with Rothmans International BV is likely to breach the merger provisions of the Trade Practices Act 1974, the Australian Competition and Consumer Commission said today.

"Following market inquiries, the ACCC has concluded that the proposed merger of BAT and Rothmans is likely to substantially lessen competition in the Australian cigarettes market", ACCC Chairman, Professor Allan Fels, said.

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 ACCC has conducted extensive market inquiries in relation to this matter", Professor Fels said. "The ACCC's view reflects its concern about the likely impact of the increase in market concentration and the merged group's control of major Australian cigarette brands, in a market where import competition is negligible and barriers to new entry are substantial.

"The proposed merger would give the merged group a 62% share of the Australian cigarettes market. The merged group would have a 96% share of the premium cigarette segment, 49% share of the mainstream segment and 61% share of the value segment. The merged group would control the nearly all of the major Australian cigarette brands, including Benson & Hedges, Winfield, Holiday and Horizon. Independently distributed imports have market share of only about 0.6%, of which Philip Morris accounts for approximately 0.5%."

The ACCC considered submissions by the parties that proposed changes in tax arrangements would lead to an increase in import competition. However, ACCC inquiries among market participants suggest that the potential for import competition to increase is limited by barriers to establishing retail distribution links independently of incumbent suppliers, the existing trading arrangements between manufacturers and retailers that would restrict the opportunities for new entrants to gain brand visibility, brand recognition and brand loyalty among smokers, and restrictions on advertising that limit opportunities to build brand images.

"The ACCC found no evidence of planned imports of house-brand or generic cigarettes by wholesalers or retailers", Professor Fels said.

The ACCC is also concerned about the effect of the proposed merger on the supply of 'roll-your-own' tobacco and on the acquisition by the merged group of tobacco leaf from Australian growers. The ACCC has advised the merger parties of its view.
Release number: 
MR 031/99
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