First tobacco privatization complete
"The starting point is really the market share," said Louis Hughes, general manager of B.A.T. Group Poland. "We've got 6.5% and Augustow has 5% - so that gives you one sales, marketing and distribution organization having about 12% of the market."
And that's nothing to blow smoke at. Last year total production in Poland reached 95 billion cigarettes with industry sales exceeding zl. 3 billion ($1.23 billion), making it the largest market in Central Europe and the third-largest in Europe behind Germany and Italy.
PWT is the first of five tobacco companies to be sold under a government plan to privatize the lucrative tobacco industry. Two more privatizations are expected to be completed by the end of the year, with the remaining two in 1996.
Under the agreement signed on Monday between the Privatization Ministry and BATIG (a 100% German subsidiary of BAT Industries), BAT agreed to pay $88 million for an initial 33% stake in PWT Augustow, with an option for another 32% after three years.
The additional share acquisition depends on carrying out a $70 million capital investment program. That will include the construction of a new primary building for cutting and curing tobacco and expansion of secondary facilities for rolling and packaging cigarettes. BAT will receive a further 12% stake as a result of capital investments, bringing its entire shareholding to 77%.
As part of the entire offer, BAT agreed to maintain employment at current levels for three years, raise wages by 30% and buy 40% of tobacco for domestic production from Polish plantations. BAT will also provide tobacco farmers with short-term loans for financing production and long-term, no-interest loans for investment in a new plant and equipment.
Employees and tobacco growers will each receive 15% of the company's shares at no charge, and the State Treasury will retain a 5% golden stake, giving it a say in all strategic decisions.
Considering the complexity of the bid, Hughes was impressed with the speed at which the Privatization Ministry worked to close the deal. "We never dreamed it could be wrapped up in less than 5 weeks," Hughes said. "I think there's a genuine will on the part of (Privatization Minister Wieslaw) Kaczmarek to sell these companies as quickly as possible."
But while pleased with the speed at which a decision was made once tender was opened, Hughes pointed out that it was a long, hard road getting to that point. "We've been here for four years now," Hughes said. "Needless to say, we're delighted that something has finally happened."
The Polish government first announced its intention to privatize the tobacco industry in 1991, but it wasn't until the beginning of this year that the Council of Ministers accepted the general guidelines for tobacco privatizations. After an attempt by the Peasants Party to include tobacco on a list of strategic industries requiring parliamentary approval before being privatized, the ministry accepted bids for five factories in mid-October.
Previous cooperation played a key role in accomplishing the privatization in such a short period, said Michael Prideaux, BAT Industries spokesman. "Our commitment was self-evident," Prideaux explained. "Our Polish partners have seen what we can bring to the party."
That includes the introduction of the new brand, Jan III Sobieski, which has proven an incredible success, with around 5.7% of the market.
It also meant a strong commitment to a leaf development program. BAT grows its own tobacco in Brazil, where the company sent some Polish farmers to observe Brazilian techniques. BAT also put up six experimental barns for drying and curing tobacco three months ago to give the Privatization Ministry and farmers an example of what they would like to do once they bought the factory.
With Augustow now sold, the ministry is hoping to complete two more privatizations by year's end. Contenders include Reemtsma, Philip Morris and House of Prince, which have been cooperating with factories in Poznan, Krakow and Lodz respectively. Other possible contenders are Tabacalera, R.J. Reynolds, Japanese Tobacco and Rothmans.
With some of the biggest names in tobacco involved in the privatization of the sector, competition will be fierce. "We can't afford to be complacent for a minute," Hughes said. "The market is definitely going to be more competitive in every respect. This is a huge challenge."
And that's nothing to blow smoke at. Last year total production in Poland reached 95 billion cigarettes with industry sales exceeding zl. 3 billion ($1.23 billion), making it the largest market in Central Europe and the third-largest in Europe behind Germany and Italy.
PWT is the first of five tobacco companies to be sold under a government plan to privatize the lucrative tobacco industry. Two more privatizations are expected to be completed by the end of the year, with the remaining two in 1996.
Under the agreement signed on Monday between the Privatization Ministry and BATIG (a 100% German subsidiary of BAT Industries), BAT agreed to pay $88 million for an initial 33% stake in PWT Augustow, with an option for another 32% after three years.
The additional share acquisition depends on carrying out a $70 million capital investment program. That will include the construction of a new primary building for cutting and curing tobacco and expansion of secondary facilities for rolling and packaging cigarettes. BAT will receive a further 12% stake as a result of capital investments, bringing its entire shareholding to 77%.
As part of the entire offer, BAT agreed to maintain employment at current levels for three years, raise wages by 30% and buy 40% of tobacco for domestic production from Polish plantations. BAT will also provide tobacco farmers with short-term loans for financing production and long-term, no-interest loans for investment in a new plant and equipment.
Employees and tobacco growers will each receive 15% of the company's shares at no charge, and the State Treasury will retain a 5% golden stake, giving it a say in all strategic decisions.
Considering the complexity of the bid, Hughes was impressed with the speed at which the Privatization Ministry worked to close the deal. "We never dreamed it could be wrapped up in less than 5 weeks," Hughes said. "I think there's a genuine will on the part of (Privatization Minister Wieslaw) Kaczmarek to sell these companies as quickly as possible."
But while pleased with the speed at which a decision was made once tender was opened, Hughes pointed out that it was a long, hard road getting to that point. "We've been here for four years now," Hughes said. "Needless to say, we're delighted that something has finally happened."
The Polish government first announced its intention to privatize the tobacco industry in 1991, but it wasn't until the beginning of this year that the Council of Ministers accepted the general guidelines for tobacco privatizations. After an attempt by the Peasants Party to include tobacco on a list of strategic industries requiring parliamentary approval before being privatized, the ministry accepted bids for five factories in mid-October.
Previous cooperation played a key role in accomplishing the privatization in such a short period, said Michael Prideaux, BAT Industries spokesman. "Our commitment was self-evident," Prideaux explained. "Our Polish partners have seen what we can bring to the party."
That includes the introduction of the new brand, Jan III Sobieski, which has proven an incredible success, with around 5.7% of the market.
It also meant a strong commitment to a leaf development program. BAT grows its own tobacco in Brazil, where the company sent some Polish farmers to observe Brazilian techniques. BAT also put up six experimental barns for drying and curing tobacco three months ago to give the Privatization Ministry and farmers an example of what they would like to do once they bought the factory.
With Augustow now sold, the ministry is hoping to complete two more privatizations by year's end. Contenders include Reemtsma, Philip Morris and House of Prince, which have been cooperating with factories in Poznan, Krakow and Lodz respectively. Other possible contenders are Tabacalera, R.J. Reynolds, Japanese Tobacco and Rothmans.
With some of the biggest names in tobacco involved in the privatization of the sector, competition will be fierce. "We can't afford to be complacent for a minute," Hughes said. "The market is definitely going to be more competitive in every respect. This is a huge challenge."
