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June 19, 2001
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Money > Reuters > Report June 19, 2001 |
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BAT suffers setback in bid for VSTBritish American Tobacco Plc, the world's second-largest tobacco group, suffered a setback on Monday after a bid by its Indian affiliate for control of India's VST Industries received a feeble response. Russell Credit, fully owned by BAT-affiliate ITC Ltd, received offers from VST's shareholders for only about 3.2 per cent of the target firm's equity, much lower than the 20 per cent it had sought to buy, an industry source said on Monday. This may give the rival bidder, Bright Star Investments, an edge over BAT in the battle to control VST, which owns 32 per cent of VST, India's second-largest tobacco firm by market share, and had supported Russell's bid. Bright Star, owned by a Bombay broker with no experience in the tobacco industry, had offered Rs 151 a share for 30 per cent of VST, more than 20 per cent higher than Russell's bid of Rs 125. "There wasn't a great a response to the offer," the source who declined to be identified said. A spokesman for BAT, which owns 32 per cent of ITC, the largest Indian cigarette maker by market share, declined to comment. A source at the investment bank advising Bright Star said the firm did not plan to disclose the response its offer had received from VST shareholders. Both companies' offers closed last Wednesday. After Bright Star pipped Russell by offering a higher price on the last day for the bidders to revise prices, BAT decided to step in itself. Last week it sought and received permission from VST to increase its stake in the company directly. Analysts said a direct increase in its stake might be the only alternative as Russell seemed unlikely to get a major stake. HIGHLY REGULATED INDUSTRY But even that could pose problems as tobacco is a highly regulated industry in India and the government restricts equity participation by foreign companies. For BAT to increase its stake in VST, it will not only have to secure the approval of India's Foreign Investment Promotion Board but also that of ITC Ltd. According to Indian regulations, if a foreign cigarette maker wishes to make a new investment in an Indian firm, it must get the approval of companies in which it has already invested. In this case, BAT would have to seek ITC's approval. ITC Ltd, which has fought BAT in the past on issues of control, is unlikely to give its consent easily, analysts and media have speculated over the past few days. Spokesmen of both BAT and ITC declined to comment, but a top ITC source told Reuters last week that whatever his company decided would be consistent with earlier policies, hinting it would oppose BAT's move to increase its stake in VST. YOU MAY ALSO WANT TO READ:
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