Proposed cigarettes divesture

19 May 1999
The Australian Competition and Consumer Commission has been offered a divestiture proposal to address concerns about the effect on Australian competition of the proposed world-wide merger between British American Tobacco PLC and Rothmans International BV.

"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," ACCC Chairman, Professor Allan Fels, said today.

"The divestiture proposal involves the sale to Imperial Tobacco Group PLC of a group of brands in each of the premium, mainstream and value cigarette segments, and in the roll-your-own market. Imperial Tobacco is a major British-based tobacco company."

In March 1999, the ACCC concluded that the proposed merger of BAT and Rothmans was likely to breach the merger provisions of the Trade Practices Act 1974 by substantially lessening competition in the Australian cigarettes market.

The ACCC view reflected the likely impact of increased 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 divestiture proposal would maintain three competitors in the cigarette market. Imperial Tobacco, as an essentially new entrant to the Australian market, would start with a 17% share of the cigarette market in each of the premium, mainstream and value cigarettes segments. The merged group would have a market share of 44%, rather than approximately 61% if the original merger had proceeded without the ACCC's intervention. The divestment also includes a number of roll your own brands.

"A contract manufacturing agreement would ensure uninterrupted supply of the divested brands to the market. Imperial Tobacco will also be purchasing the BAT production facility at Petone in Wellington.

"The divestment proposal is also subject to satisfactory distribution arrangements being put in place."

Imperial Tobacco and the merger parties requested that, for commercial reasons, the identity of the brands subject to the divestiture be kept confidential until they are announced by Imperial Tobacco and the parties.

The ACCC considers such requests on a case-by-case basis. The ACCC also always prefers to give market participants the opportunity to comment on such proposals if possible.

In this case, the ACCC was not prepared to accept the proposal on a confidential basis but has recognised the commercial imperatives in maintaining confidentiality of aspects of the divestiture proposal, particularly the brands which Imperial Tobacco is proposing to acquire.

Accordingly, the ACCC invites comment from market participants about the divestiture proposal. The ACCC expects to determine whether the divestiture proposal would satisfy its competition concerns within a couple of weeks.

In Canada, consent orders were filed last week in the Competition Tribunal for divestiture by BAT of Rothmans' Canadian business. The Canadian divestiture would reduce the merged group's share of the Canadian cigarettes market from 88% to 70%. The New Zealand Commerce Commission is also considering a divestiture proposal to address competition issues in New Zealand.
Release number: 
MR 068/99
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