Glenboden M & A Originations

BAT's acquisition in Turkey shows that independent national champions are still available in tobacco

Priority Rating priority rating 4
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Origination Status buyer announcement of company acquisition, February 2008
Asset Tekel (Tukey), no.2 domestic tobacco producer
Buyer British American Tobacco plc (UK), no.2 global tobacco producer
Seller Turkish Government
Buyer Rationale strong no.2 player in 'BRIC' -type geography
Seller Rationale acceptable valuation, global consolidation timing
NBs Tekel has 30% cigarette market share in Turkey
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We predicted that BAT would make some significant acquisitions some time ago, as a response to JTI’s acquisition of Gallaher and, later, Imperial's takeover of Altadis. BAT's main response was to acquire SkanTabak, regional market leader in Scandinavia. However, this contemporaneous deal in Turkey shows that, although this global tobacco consolidation round may be over, there are still a number of independent, national market leaders available, like Tekel, in attractive developing geographies.

BAT seems to have bought both Tekel at a reasonable valuation, at just over x11 EBITDA. This is at a discount to the international comparables of the Gallaher and Altadis deals, which were in the x13 – 14 EBITDA range. Moreover, a better comparison might be with PMI’s acquisition of Lakson in Pakistan last year, which is also a strong no.2 player in a major developing geography; in that transaction the multiple appears to also have been about x14 EBITDA.

Still, there were good reasons for the lower valuation. The Turkish privatization authorities are likely to have only had private equity as an alternative to BAT; that’s because PMI is already market leader in that country, with over 40% share, and JTI and Imperial are still digesting their earlier consolidation targets. Besides which, there is significant restructuring work to do at Tekel, three of whose six factories are ‘dormant’ now.

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THIS LEAD'S VALUATION
Size (€ mln) 1.150
Sector tobacco
Asset Quality Turkey no.2 branded
Seller state
Buyer large plc
P/S n/a
P/Ebitda 11,4
Type total consideration
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