BAT bags Italy's ETI for £1.6bn

BRITISH American Tobacco is to buy Italy's state-owned tobacco company ETI for £1.6bn.

The company, which beat off a rival bid from Franco-Spanish giant Altadis, said the deal would give it second position in Italy, the second largest cigarette market in the European Union after Germany.

It also inherits ETI's four-year deal to produce and distribute cigarettes for market-leader Philip Morris, owner of brands such as Marlboro.

'This strategically important investment will transform our presence in one of Europe's largest tobacco markets,' said BAT chairman Martin Broughton.

'The price we are paying is higher than the market has been expecting but it reflects the detailed financial information we have received, the discussions we have had with ETI's management and our view of the long term prospects for the business and synergies that can be achieved. We got a good deal at a fair price.'

The deal was unveiled after the London market had closed. The shares had slipped 1.3% in London and in New York were off 2.5%.

ETI sold more than 26bn cigarettes in 2002 - about 26% of the market - including brands MS and Sax. It also has almost 40% of the country's cigar sales. ETI employs more than 2,100 people and owns five cigarette and two cigar factories.

ETI is expected to report operating profits of e190m (£133.4m) for the year ended September, up 31% on the year. It had net assets of e114m as at 31 March.

BAT said it would fund the deal from existing resources. It would boost earnings in its first year, before goodwill amortisation, and BAT was seeking annual cost-savings of e35m a year by 2007.