Now we're smoking: BAT the new giant in South Africa
Marcia Klein	Published:Aug 10, 2008
Article Tools   Print  E-Mail Save and Share British American Tobacco (BAT) is set to become South Africa's biggest listed company, challenging stalwarts like mining giant Anglo American for top spot on the JSE. At current market prices, BAT, which will have its secondary listing on the JSE, is valued at about R560-billion. Its primary listing will be in London. The new listing is a result of a massive, complex restructuring of the Rupert family-controlled Swiss luxury goods group Richemont and its local investment group Remgro. The restructuring will also bring about a massive payout to shareholders — R60-billion in the case of Remgro and just less than R120-billion for those with shares in Richemont . For the first time in the history of the Rupert family empire, neither Remgro nor Richemont will be invested in tobacco. Johann Rupert, who chairs Richemont and Remgro, will also chair a new offshore-based investment vehicle, Reinet, nostalgically named by Rupert after Graaff-Reinet in the Eastern Cape, where his father and Remgro founder Anton was born. Luxembourg-based Reinet gives shareholders access to an offshore investment platform without using foreign exchange allowances. Reinet will start off with a stake of less than 3% of BAT and about €407-million in cash and other assets, and will have a rights offer to ensure it is substantial enough to make large investments. The restructuring of the Rupert empire arises from a looming, potentially costly, tax problem in Luxembourg, where the company, which held both Remgro and Richemont's tobacco interests, was registered. The restructuring leaves Richemont as a focused luxury goods company. Remgro remains an investment group with financial and industrial interests. Both Remgro and Richemont have been criticised for their conglomerate structures, which result in the share price trading at a discount to the underlying value. The restructuring allows shareholders direct access to the investments of their choice. Rupert said on Friday that it had been a big day, one which had gone well after months of work. "People had no idea how complex it was," he added. Asked if Remgro and Richemont were now less attractive to investors because of their size, Rupert replied: "I don't care about indices." There was some concern about the future of the now much smaller investment company, Remgro. Remgro CEO Thys Visser said the group retains a portfolio of roughly R50-billion of good-quality shares. BAT's dominance in the portfolio disappears, and the FirstRand/RMB Holdings group becomes worth about 30%. The challenge for Remgro will be to spend the R6-billion it has in cash. Visser said shareholders had expressed the same concerns when Remgro had effectively given up its stake in Vodacom, saying the group was remaining in the old economy. But he said Remgro has been adding value to its investments, or putting shareholders in investments they would not otherwise have access to. Unlike many other investors, it remains "unashamedly a long-term investor". While Remgro has got rid of tobacco, Visser is optimistic about the future of BAT. The tobacco business remains sound and BAT is a good company with a footprint in developed and developing economies, he said. "If the holding cost was not prohibitive, we would not have proceeded with the distribution," he said, referring to the change in Luxembourg tax legislation. Visser said Reinet "could fulfil a great role if we can give it sufficient capital". A rights offer is likely. Rupert said he had had approaches over years to look at an investment arm and the Reinet idea was prompted by an outside director who described Richemont as the cheapest and best private equity fund around. The restructuring and BAT listing was welcomed on the market. Both Remgro and Richemont shares jumped more than 5%. But not everyone is happy. Yussuf Saloojee of the National Council Against Smoking said BAT's listing is "regrettable, not only because of the product it sells but also because of its conduct". He said the company sells its products to young people and has broken an advertising ban on a number of occasions. He encouraged people not to invest in the company as it is not socially responsible. The Empire 1940 — Anton Rupert establishes the tobacco company Voorbrand, forerunner of Rembrandt Group Limited, in Johannesburg. 1956 — Rembrandt lists on the JSE. 1972 — The overseas tobacco interests of Rembrandt are consolidated in Rothmans International, which lists on the London Stock Exchange. Since then, Rembrandt has expanded its interests outside tobacco, wine and spirits into many other economic sectors. 1988 — Founding of Compagnie Financière Richemont AG — a Swiss-listed luxury goods group which then also acquired the shares in Rothmans International. 1989 — Richemont acquires Philip Morris's 30% interest in Rothmans International. 1993 — Separation of Richemont's tobacco and luxury goods operations into Rothmans International and Vendôme Luxury Group. 1999 — Tobacco interests are merged with British American Tobacco, the world's second-largest cigarette producer. The investment is held through a joint holding company, R&R Holdings (Luxembourg), in which Rembrandt (now Remgro) and Richemont hold 33.3% and 66.6%, respectively. The Companies Richemont has luxury brands in jewellery, watches, writing instruments, leather and accessories, and clothing. Its brands include Vacheron Constantin, Baume & Mercier, Jaeger-LeCoultre, Lange & Söhne, Cartier, IWC, Piaget, Lancel, Alfred Dunhill, Van Cleef & Arpels, Montblanc and Chloé. Remgro has interests in tobacco, financial services, mining and industry, while the telecommunication and technology interests are accommodated in VenFin Limited. Its major investments include British American Tobacco, RMB Holdings, FirstRand, Air Products SA, Distell, Dorbyl, Kagiso Trust Investments, Medi-Clinic, Nampak, PGSI, Total South Africa, Unilever South Africa Holdings, Trans Hex, Implats, Tsb Sugar and Rainbow. British American Tobacco (BAT) is a £26-billion turnover company operating in more than 180 markets with more than 300 brands. It produces 684 billion cigarettes a year. BAT South Africa has 65% of the local tobacco market. Its brands include Rothmans, Dunhill, Benson & Hedges and Peter Stuyvesant. Who Gets WhatThe Tax Man: SARS will get R850-million in tax including STC and securities transfer tax. Richemont shareholders: For every 1000 Richemont A units held on October 21, an investor will get 1000 A shares in Richemont 1000 shares in Reinet On November 3 Reinet will distribute 90% of the BAT shares to shareholders on the pro rata cancellation of ordinary shares in Reinet and then issue warrants to shareholders. Before the end of its rights issue, Richemont shareholders will, for every 1000, have 1000 ordinary shares in Richemont 137 ordinary shares in Reinet 611 shares in BAT and 137 warrants to subscribe for 110 new shares in Reinet, to take up or sell. If you are a Remgro shareholder: For every 100 Remgro shares, you will get: 40.6 BAT ordinary shares and 63.7 Reinet depository receipts You will also get 6.3 warrants to subscribe for 50.9 Reinet depository receipts in the Reinet rights offer.

--
Jean-Louis Kayitenkore
Procurement Consultant
Gsm: +250-08470205
Home: +250-55104140
P.O. Box 3867
Kigali-Rwanda
East Africa
Blog: http://www.cepgl.blogspot.com
Skype ID : Kayisa66