FTC sues to stop B.A.T's purchase of American Tobacco Co.

November 01, 1994|By Bloomberg Business News

NEW YORK -- The U.S. Federal Trade Commission yesterday sued to block B.A.T Industries PLC's proposed $1 billion acquisition of American Tobacco Co., calling the purchase a violation of U.S. antitrust laws.

In a suit filed in Manhattan federal court, the federal agency said B.A.T's purchase of American Tobacco, a unit of American Brands Inc., would remove one of only six major cigarette manufacturers in the United States.

The companies agreed not to complete the purchase until Dec. 5, when U.S. District Judge Milton Pollack will hold a hearing on the FTC's request for a preliminary injunction.

"The United States cigarette market is already highly concentrated and will become substantially more so if this proposed acquisition is consummated," the FTC said in its suit.

The merger would add American Tobacco's 7 percent of U.S. cigarette volume, which includes the Carlton, Tareyton, Lucky Strike and Pall Mall brands, to the 11 percent share of B.A.T's Brown & Williamson unit, which sells Kool, Barclay, Capri and Viceroy. American Brands and B.A.T said they would fight in court.

William J. Alley, chairman and chief executive of American Brands, has said that the merger would be "procompetitive and good for consumers" because the combined organization would be a stronger competitor against the industry leaders.

An attorney working with the companies conceded that the FTC is almost certain to win, however.

London-based B.A.T announced in April that it would buy American Tobacco from American Brands for $1 billion in cash.

The FTC noted that American Tobacco has not followed other firms in recent price increases. American Tobacco has invested heavily in private label discount cigarettes, helping start a price war last year as Philip Morris Cos. and RJR Nabisco Holdings Corp. slashed premium prices to stave off the growth in sales of cheap cigarettes.

Brown & Williamson also depends heavily on the discount market. The American Tobacco purchase was seen by analysts as a way for B.A.T to bolster sales at a time when Americans are buying fewer cigarettes.

Because of its independence in pricing practices, American Tobacco's purchase "would remove an aggressive competitor from the U.S. cigarette market," the FTC said.

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