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December, 2009

Delayed sale of Bulgartabak
Sofia - Bulgaria has delayed the sale of tobacco company Bulgartabak Holding until the end of March and plans to hire a consultant to help structure the deal, Bulgarian Economy and Energy Minister Traicho Traikov recently announced.

The new government, which won July elections, initially aimed to sell the company by the end of 2009 at an open auction, but the plan failed to attract the interest of major tobacco companies.

Bulgartabak, the country's leading cigarette maker, has a market capitalization of 155 mn levs ($118.8 mn). "The initial idea was not the most suitable... We have decided to hire a consultant to help structure the deal," Traikov told reporters. "The sale will be delayed, but could happen in the first quarter next year."

The sale will be the fourth attempt by Sofia to dispose of the former tobacco monopoly, whose key assets are the cigarette mills Sofia BT and Blagoevgrad BT. Previous attempts to sell the company failed due to political wrangling and, according to some analysts, because political and economic groups benefited from cigarette smuggling and lucrative state-financed contracts with Bulgartabak.

British American Tobacco offered ?200 mn ($299.6 mn) for Bulgartabak in 2005, but the deal was blocked by the ethnic Turkish MRF party, a junior coalition partner in the previous two governments, and BAT withdrew its proposal.

Industry insiders say the holding was not likely to fetch even half of BAT's offer, as market liberalization has eaten into Bulgartabak's market share since 2007. Another hurdle is the government's plan for a ban on smoking in all public places, including bars and restaurants, from July 2010. In Bulgaria half of the adult population smokes, and the country ranks second after Greece in the EU in terms of regular smokers. The new cabinet has also raised excise duties on cigarettes by 43% in an attempt to curb smoking.

ITC hikes prices of premium cigarettes
Kolkata - ITC recently hiked prices of its premium cigarettes - India Kings and Benson & Hedges - in the range of 5-10%. While India Kings, priced at Rs 100, will now cost Rs 110, a pack of Benson & Hedges will come for Rs 105 against Rs 100 earlier.

Japan Tobacco says government will sell stake 'eventually'
Tokyo - Japan Tobacco Inc. said the country's government will "eventually" sell its stake in the maker of Mild Seven cigarettes as Prime Minister Yukio Hatoyama may want to raise funds to stem rising public debt.

Japan's government currently owns 50.01% of the cigarette maker, having sold stock three times since the company was founded in 1985. Shares of Japan Tobacco, the world's third- largest publicly traded cigarette maker, have fallen 14% since Hatoyama came to office on Sept. 16, as the government debates whether to raise taxes on cigarettes. Most recently, the state sold a 14.5% stake in June 2004. Public debt in Japan is approaching twice the size of gross domestic product, according to the Organization for Economic Cooperation and Development. The country gets about 1 tn yen in tax revenue each year from tobacco.

Japan Tobacco acquired RJR Nabisco's international businesses, including the Camel and Winston brands, in 1999 and the U.K.'s Gallaher Group Ltd., which owns Benson & Hedges and Silk Cut, in 2007. International tobacco operations accounted for $3.4 bn, or about half, of the group's 2008 earnings.

Ruling to cost BAT RM80 mn in 2010
Kuala Lumpur - British American Tobacco (Malaysia) Bhd's operating profit next financial year will be cut by up to RM80 mn following a Ministry of Health ruling which forbids the sale of cigarettes in packs of less than 20, it said in a recent stock exchange statement. The company's smaller cigarette packets have higher margins due to higher stick pricing, it said. The ruling is effective June 1, 2010.

United States
Altria to expands product base in the US
New York - For the first time since early 2009, Altria Group's Philip Morris USA (PM USA) expanded the trial of its Marlboro Snus this past November. Marlboro Snus will now (or soon) be available in select markets in Wyoming, Utah, Nevada, California, and Colorado.

Snus has been in test market sine 2007. The company has received feedback from initial tests and made some changes to the product. New Marlboro Snus includes smaller packaging that contains six pouches, down from 12 pouches, along with a larger pouch size, according to a spokesman.

The Marlboro Snus test was previously expanded at the beginning of this year when it entered Phoenix. It also expanded in March 2008 to cover Indianapolis, where the company's initial snus product - Taboka - was tested in 2007, and later discontinued when the Marlboro-branded product entered the market.

Meanwhile, new Copenhagen Wintergreen moist smokeless tobacco, by Altria's U.S. Smokeless Tobacco Co. (USSTC), hit shelves nationwide last week. And Altria's John Middleton will roll out a no-tip cigarillo style of its Black & Mild cigar in the Southeast US this month.

Also in Altria's cigarette business, there are plans for two line extensions under the Marlboro Special Blend brand that will be available nationwide early next year.

Conwood Company returns to original name
Memphis - Conwood Company, LLC, is returning its original name: American Snuff Company, LLC, effective Jan. 1, 2010. Conwood, the nation's second largest manufacturer of smokeless tobacco products, is an operating company of Reynolds American Inc. (RAI). The company name change will not affect any of the company's operations, products or staffing levels.

American Snuff Company was founded before 1900. In 1912, American Snuff Company's headquarters moved from New York to Memphis, and for 40 years, the company manufactured dry snuff. In the 1950s and 1960s, the company began diversifying, acquiring manufacturers of chewing tobaccos, as well as companies that manufactured shoe polish, popcorn, theater supplies and yogurt. In 1966, to reflect its diversified operations, the company changed its name to Conwood Company.

Since the 1980s, Conwood has divested all its non-tobacco lines of business and focused solely on smokeless tobacco products. Its Grizzly brand is the best-selling brand of moist snuff in the US.

Reynolds to acquire Swedish smoke cessation company
Winston-Salem - Reynolds American Inc. announced that it plans to buy Niconovum AB - a company that specializes in products that help people quit smoking - for $44 mn. Reynolds is purchasing all outstanding shares of Niconovum, the companies said. They expect the deal to be completed by year's end. Reynolds said it plans to retain Niconovum's management team and keep its headquarters in Helsingborg. This is part of Reynold's move into what the company's CEO Susan M. Ivey calls "a total tobacco company." The biggest step that Reynolds has taken in that direction was buying Conwood, a smokeless-tobacco company, for $3.5 bn in April 2006. Reynolds also has gone national with Camel Snus, a spitless tobacco product, and it has introduced orbs, sticks, and film-like strips for the tongue in test markets.

Tobacco International - December, 2009

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