Altadis Considers Break-Up Options As BAT Re-Examines Bid Position

By Rupert Steiner

ALTADIS, the Spanish cigarette maker is exploring break-up options after rejecting a Pounds 8bn (E11.7bn, $15.6bn) bid from Britain’s Imperial Tobacco. This is being prompted by heightened interest in the company from private equity and trade buyers.

The Business has also learnt that BAT, the world’s second- biggest tobacco company, which appeared to rule itself out from making a bid three weeks ago, is in fact “watching the situation very carefully” fuelling speculation it will revise its position.

At least one private equity firm has made contact with one of Altadis’ three advisers. Imperial, which is being advised by Citigroup, is also expected to increase its opening offer of E45-a- share.

In January, The Business was the first to reveal Imperial had asked its advisers to prepare a bid, as well as disclosing last week that talks between the two firms had begun.

While Altadis, which is being advised by NM Rothschild, JPMorgan and Credit Suisse, considers itself in a strong position as a stand- alone business, sources familiar with the situation say it is considering whether breaking itself up would produce more shareholder value than bids from suitors for the whole business.

The manufacturer of Gauloises would easily be split into three businesses: cigarettes, cigars and logistics in which it holds a majority stake.

Rival tobacco firms want the cigarette brands which include Fortuna, Nobel and Fine, but insiders suggest they would not be a natural home for Altadis’ premium range of cigars, which include Cohiba and Montecristo.

It is thought Altadis would get more for the cigars from a luxury goods player, and the French billionaire Bernard Arnault was mentioned by way of example by a source.

It is unlikely that LVMH, the business Arnault chairs, or Groupe Arnault, the holding company, which has been on a recent acquisition drive, would want a tobacco brand. That would leave private equity with the cash-generative logistics business.

While a break-up is only one of several options, including a management buyout, under consideration, sources close to Imperial suggest Altadis would struggle to get it past its heavily unionised workforce. Sources close to Altadis said the unions would only object if jobs were lost.

Other bidders are examining their options. BAT had warned that it felt tobacco stocks were priced too high and it would not overpay, but one source familiar with the situation said BAT is watching the situation carefully. Should it revise its position it would only be interested in the main cigarette business.

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