BAT Hunts for Acquisitions in Asia, North Africa, CFO Says

  • Lucky Strikes maker planning ‘smaller’ purchases, Stevens says
  • CFO doesn’t expect big industry consolidation in coming years

British American Tobacco Plc, the maker of Lucky Strike and Pall Mall cigarettes, said it’s on the hunt for bolt-on acquisitions in emerging markets as major tobacco industry consolidation looks improbable.

“We’re particularly interested in bits of Asia and North Africa," BAT CFO Ben Stevens said in a phone interview, adding the company is looking everywhere. “Any M&A deal we do will be on the smaller end of the scale. I don’t foresee any big industry consolidation in the next few years.”

The drop in sterling since the U.K. voted to leave the European Union has made potential acquisitions of British companies more affordable and sparked renewed speculation that companies such as Davidoff maker Imperial Brands Plc could become targets. While analysts say that most of the sector’s big takeover opportunities have disappeared, BAT has spent more than 5 billion pounds ($6.6 billion) in past years on deals including a minority stake in its Brazilian unit and TDR, Croatia’s biggest cigarette maker.

Finding the right deal isn’t easy as BAT doesn’t want to overpay, Chief Executive Office Nicandro Durante has said.

Share Growth

“We’re growing market share extremely well ourselves, and I don’t see why our investors should pay a premium,” Stevens said.  

BAT shares have gained 28 percent this year to record levels as the stock has become a haven for investors betting that weaker sterling will help spur profit growth.

Adjusted profit from operations was 2.45 billion pounds ($3.2 billion) in the first half, the London-based company also said Thursday. The result was slightly below analysts’ estimates of 2.49 billion pounds. BAT said profit growth will accelerate in the second half.

Translating earnings from abroad back into pounds will give a 4 percent boost to full-year operating profit at current exchange rates, the company said. However, the tailwind is mitigated by the effect of buying tobacco in dollars and selling in many emerging markets, which BAT expects will hurt profit by 6 percentage points.

BAT -- which generates less than 1 percent of its revenues domestically -- doesn’t see a material effect on its business from the U.K.’s vote to leave the European Union, although the cigarette maker said the decision does create regulatory uncertainty.

“We don’t know whether the EU tobacco products directive, which has been transposed into national law, would be kept in the U.K. or not," BAT’s director of legal affairs Jerry Abelman said by phone.

That directive imposes more stringent regulation of the tobacco industry across the European Union.

BAT and its competitors are meanwhile losing a battle against European regulators, who are paving the way for plain packaging on cigarettes. The company has filed a legal challenge against the French government’s decision to pass plain packaging into law, Abelman said. BAT lost a similar challenge in the U.K.

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