BAT Signals It May Raise Bid for Rest of Brazil’s Souza Cruz

British American Tobacco Plc, the maker of Lucky Strike and Pall Mall cigarettes, signaled it may raise its offer for Souza Cruz SA, Brazil’s biggest cigarette maker.

The London-based cigarette maker said Wednesday it will get a new estimate for Souza Cruz after some investors opposed BAT’s $3.5 billion offer for the stake it doesn’t already own. BAT also said first-quarter revenue rose 1.7 percent at constant exchange rates, trailing the 3.5 percent median growth estimate of analysts surveyed by Bloomberg.

BAT is looking to squeeze more profit out of Brazil, its biggest market, as the volume of smokes sold globally declines due to increased government restrictions and the spread of e-cigarettes. The timing of price increases taken this year will mean its financial performance is “significantly” skewed toward the second half, Chief Executive Officer Nicandro Durante said.

“The second half should be better, but these results now put them under a bit more pressure to deliver decent ‘hockey stick’ results for the full year,” Philip Gorham, an analyst at Morningstar, said by e-mail.

BAT fell 1.4 percent to 3,619 pence at 9:41 a.m. in London, trimming the stock’s gain this year to 3.3 percent.

Higher Offer?

Credit Suisse Group AG was appointed April 9 to make the new valuation of Souza Cruz within 30 days, and any further offer BAT makes must be within or above that estimate, the tobacco company said today. Aberdeen Asset Management, the second-largest shareholder in the Brazilian company, rejected BAT’s offer of 26.75 reais a share last month. Souza Cruz closed yesterday at 26 reais.

Cigarette volume from subsidiaries declined 3.6 percent, BAT said, worse than the 1.9 percent drop estimated by analysts and hurt by falloffs in Brazil, Russia and Vietnam. Volumes of the company’s main global brands, which also include Dunhill and Kent, rose 5.7 percent on gains in market share.

BAT’s revenue growth has decelerated from last year, said RBC analyst James Edwardes Jones, who has an underperform rating on the shares.

The cigarette maker also said a decision should come “shortly” from the Federal Trade Commission over Reynolds American Inc.’s proposed purchase of American tobacco maker Lorillard Inc. The British company is funding $4.7 billion of the $25 billion deal, in order to keep a 42 percent stake in Reynolds.

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