BRITISH AMERICAN TOBACCO/ENTE TABACCHI ITALIANI
PRESS RELEASE
PRESS RELEASE
THE COMPETITION AUTHORITY HAS BEGUN AN INVESTIGATION OF THE BAT-ETI TAKEOVER: IT MAY RESTRICT COMPETITION
At its meeting on 6 November 2003, the Competition Authority resolved to open an investigation into the British American Tobacco (BAT) and Ente Tabacchi Italiani (ETI) companies.
The operation consists of the acquisition by BAT of the entire equity of ETI. The merger began with the invitation to tender issued by the Ministry of the Economy and Finance as part of the privatisation of its operations in the tobacco industry.
As a result of the European Commission's decision to refer the matter to the Italian Authority adopted on 23 October 2003, the Italian Competition Act (Law 287/90) applies to the effects of the merger on the Italian cigarette, cigar and tobacco markets.
More specifically, the markets on which both BAT and ETI operate are the production and marketing of: i) cigarettes; ii) cigars; iii) pipe tobaccos and iv) roll-your-own tobacco.
On this market there is a substantial concentration of supply, with the two largest companies, Philip Morris and ETI, holding a market share of over 80% in terms of total sales, while BAT's is above 5%.
The Italian cigarette market, however, is highly saturated because all the main tobacco companies operate on it. Any structural changes in the market can therefore at most be the result of measures taken by the companies already operating there, such as launching new brands or repositioning existing ones.
There are also substantial distribution and production contractual agreements between the two main Italian cigarette market manufacturers, PM and ETI.
Lastly, the market entry of minor manufacturers might be discouraged by the advertising ban under current legislation, while the publication of the retail prices of individual cigarette brands in the Official Gazette makes the market highly transparent.
The company that emerges from the ETI/BAT takeover will have a market share of over 30% in terms of volume, giving the two largest operators (ETI/BAT and PM) an aggregate market share in excess of 80%.
This will create an oligopoly on what is already a saturated market with the result that, because of the characteristics mentioned above, the two leading companies will be able to know each other's marketing intentions with sufficient precision and timeliness to be able to agree on a common joint approach. What is relevant is that, unlike the pre-takeover market environment, the second largest member of the oligopoly as a result of the operation will be the very company which had been the most dynamic market force previously.
In view of the market shares in the four sectors affected by the operation (cigarettes, cigars, pipe tobacco and roll-your-own tobacco) the takeover may have anti-competitive consequences, partly in consideration of the de facto monopoly enjoyed by ETI on the tobacco product distribution market.
Considering that the takeover giving BAT total control of ETI could create a joint dominant position on these markets such that competition is substantially restricted on a lasting basis, the Authority has resolved to start an investigation into the British American Tobacco and Ente Tabacchi Italiani companies.
The investigation will be completed within 45 days of the starting date.
Rome, 7 November 2003