Bulgaria and Czech Rep. submit to lure of being accepted at the EU "cool kids table"

This August, both the parliaments in Sofia and Prague are expected to raise taxes on cigarettes as part of their acceptance within the European Union. While both are unimpeachable (I think?) members of the European Union, they are raising their taxes to be in-line with EU norms.

In the case of Bulgaria:

The official reasoning behind the excise hike is the need to reach the minimum EU rates ... in view of Sofia's bid for an eurozone [countries who utilize the Euro] entry. In 2006, Bulgaria hiked the excise on cigarettes to a level originally not expected to be reached before 2008. The move added 1 lev on average to the retail price of cigarettes.

This demonstrates a raise of nearly 30%. The Black Sea nation is also expected to fall in line with the EU tax schemes on alcoholic beverages, energy, and petrol by 2013.

In the CR:

Consumer tax on cigarettes will likely be higher than as originally proposed in the Czech government's fiscal reform package, in order to meet the Czech Republic's promise to the European Union, made on the country's accession to the union, daily MF Dnes reported.
The tax will likely hike the price of each pack of cigarettes by 5 crowns, compared to the previously proposed 4 crowns, to meet the EU requirement that the minimal tax on one thousand cigarettes equals 64 euro.

Basically the drive for cigarette tax conformity is a push from EU heavyweights in the western part of the continent in an effort to bring enlightenment to their less "civilized" continetal bretheren in the east.

USA says goodbye to tobacco

A federal tax on a pack of cigarettes raised 61 cents, while the tax on a premium cigar may be going up $10 (or 50% of the importer's or manufacturer's wholesale price).

AND

The Democratic congress is pushing through a bill to give the FDA oversight over all tobacco products. What exactly wil this mean? Good question. It perhaps depends on who is in charge of the FDA at the time. Which, for now, looks like the next presidential cycle will be the Dems--not the most tobacco friendly folks in the world.

Philip Morris Subic Bay deal a payoff?

Earlier we reported PMI'splans to invest $20 million dollars in a facility in Subic Bay in the Philippines, with the hanging carrot of a future $80 million dollar facility to be built in either Subic Bay or in Singapore.

Time Magazine recently had a report that North Korea is now the number one counterfeiter of cigarettes, in a trade officially sanctioned by the government. The report says that most of the cigarettes enter the world market (including Asia, Europe, and even the US) via... you guessed it Subic Bay.

This leads this blog to wonder... is this investment somehow linked the The Philippines taking a harder stance on counterfeit cigarettes coming through their port, with the possibility of a four-fold payment if things improve? Like I said, PMI is a smart, smart company.

From the Time piece:

DURING THE COLD WAR, SUBIC BAY IN THE Philippines was a critical strategic base of the U.S. Navy. The Navy is long gone (the base closed in 1992), and Subic Bay's facilities are now used strictly for commercial purposes--including, according to a detailed private investigator's report produced for the international cigarette industry in 2005, the smuggling of contraband cigarettes from North Korea.

North Korea is not the only player in the game. (Until recently, China was by far the biggest source of phony brand-name cigarettes, industry executives say.) The private investigator's report for the cigarette industry found that 10 to 12 factories in North Korea produce a total of 41 billion contraband cigarettes a year, shipped out of the North on "deep-sea smuggling vessels." They are then off-loaded at sea to smaller, high-speed vessels that deliver the cigarettes to traffickers in East Asia. That allows the deep-sea smuggling ships to remain in international waters, beyond the reach of any country's law-enforcement authorities.

In late 2004, private investigators witnessed 6,000 master cases of cigarettes--each containing 10,000 smokes--being unloaded at Subic from a fishing vessel that routinely runs between Taiwan and North Korea. Since then, according to a North Korean defector intimately involved in the smuggling of phony cigarettes, "the business has only gotten bigger." This source, who did not want his name used for fear of reprisal in North Korea, where his immediate family lives, says export routes for contraband cigarettes--carrying popular name brands such as Marlboro, Benson & Hedges and Mild Seven, among others--are now multiple and varied.

North Korea's military- and internal-security services are "significant players" in the cigarette business, according to the source who used to be in the game. The North uses both homegrown and imported tobacco in these contraband businesses. A large source of phony cigarettes is the Dongyang Cigarette factory in Pyongyang, owned by a company called Kosanbong, which is controlled by North Korea's internal-security bureau, according to the 2005 private report and a defector interviewed by TIME. The North Koreans have been able to import equipment from Taiwan and mainland China to produce the cigarettes. Overall, the trade generates $80 million to $160 million in profit for the regime every year, the study claims. That cash is then spread among Pyongyang's élite to ensure loyalty to Kim, say multiple sources.
The illicit-cigarette business is a window into how North Korea arranges and moves its whole range of illegal products. The regime uses shipments of contraband cigarettes to export other goods, including narcotics and weapons. North Korea has successfully exported contraband cigarettes from its two major container ports using ships registered in other countries. Some of that material may have found its way to the U.S.--an indication of how easily weapons of mass destruction (WMD) from the North's arsenal could be smuggled to other countries if Kim were tempted to put them up for sale.

Imperial marries Altadis

Is it over?

The long-waivering future of French-Spanish Altadis may finally have found a happy ending.

From The New York Times

LONDON, July 18 — The Imperial Tobacco Group agreed on Wednesday to buy Altadis for 12.6 billion euros ($17 billion), gaining brands like Gauloises cigarettes and Cohiba cigars.

If approved by shareholders of both companies, it would be the biggest acquisition in the tobacco industry in Europe and end a four-month takeover battle with CVC Capital Partners, a private equity firm. CVC has yet to say whether it plans to top Imperial’s bid.

Imperial Tobacco, the maker of Davidoff cigarettes and Rizla rolling papers, offered 50 euros in cash for each Altadis share, a 29 percent premium to the share price on March 14, the day before Imperial’s first bid of 45 euros a share.

Takeovers in the tobacco industry over the last eight months have amounted to about $40 billion as companies are looking for growth beyond mature markets like Britain and Germany and as smoking bans and other antismoking measures by governments hurt consumption.

Japan Tobacco agreed in December to buy the Gallaher Group, the maker of Benson & Hedges cigarettes in Europe, for £7.5 billion ($15 billion), and Imperial earlier this year paid $1.9 billion for Commonwealth Brands to expand into the United States.

The takeover of Altadis “significantly enhances our operating platform and scale with an increased presence in profitable mature markets and improved emerging market opportunities,” Gareth Davis, Imperial Tobacco’s chief executive, said in a statement.

With Altadis, Imperial would obtain a share of markets in Russia and Morocco and control of the world’s top maker of cigars, a fast-growing industry with higher operating margins than cigarettes. Altadis is also attractive because it derives most of its sales from Spain and France, where consumption is more buoyant than in Britain. Imperial has 46 percent of the market in Britain, where the government introduced a smoking ban in public places this month.

The combined company “will have a tough game to play in Europe, but there are lots of opportunities in emerging markets, like India, where there are 1.3 billion people and a lot of smokers,” said Ivan Diez, a fund manager at Capital at Work Investment Partners in Madrid.

The acquisition will also strengthen Imperial’s position as the fourth-largest cigarette maker worldwide, narrowing the gap on JTI-Gallaher, the newly merged No. 3. Altria, the owner of Marlboro, is the largest, followed by BAT, the British tobacco company that makes Lucky Strike cigarettes.

Altadis said today that it would recommend that shareholders vote in favor of Imperial’s latest offer, which matches CVC’s most recent approach, but added that it did so “in the absence of a competing offer at a higher price.”

Some analysts speculated that CVC, which had bid for Altadis on its own after PAI Partners dropped out of a possible joint bid, might come back with a higher offer. But others, including Mr. Diez, said CVC was more likely to walk away because it could not achieve the same cost savings. Recent jitters in the credit markets could also make it more difficult to raise debt to finance a higher bid.

The offer may also end speculation about Imperial Tobacco itself being a takeover target, analysts said. The company’s shares have risen 13 percent this year as investors bet that Altadis could team up with Altria to bid for Imperial to pre-empt its own takeover.

“It’s ‘put up or shut up’ time both for private equity regarding Altadis and for Altria if it is truly interested in Imperial,” Charles Manso de Zuniga, a Dresdner Kleinwort analyst, wrote in a note to investors.

Imperial Tobacco said Wednesday that it planned to raise £5.4 billion by selling new shares to finance the acquisition, which is valued at 16.2 billion euros, including debt. The company said that it expected to save 300 million euros a year two years after the takeover, with a one-time cost of about 470 million euros.

Altadis had rejected offers from CVC and Imperial as too low. In addition to approvals by shareholders of both companies. the deal is contingent upon Imperial’s ability to secure 80 percent of Altadis’s shares. Citigroup, Lehman Brothers, Santander and Morgan Stanley advised Imperial. Merrill Lynch, Credit Suisse, JPMorgan Chase and Rothschild worked with Altadis.

Imperial Tobacco’s shares rose 1.54 percent, to £22.4, in London while Altadis gained 1.5 percent, to 48.8 euros, in Madrid.

PM: "P" is for prepared. "M" stands for mightily.

Alrtia's PMI is probably doing the best job of anyone on the international scene of preparing for a future in the tobacco business.

• Just today, PMI announced it is buying an additional 30% in it's Mexican business with partner Grupo Carso.


• PMI announced plans to close its North Carolina plant and move production overseas (probably to Europe). The move is expected to save the company over US$300 million by 2011.


• Some of that money may be going to a US$20 million dollar investment to renovate a warehouse in Subic Bay in the Phillipines to be a gateway into the Asian marketplace. They eventually plan to invenst US$80 million in a facility in Subic Bay or in Singapore. Could they be foreseeing an liberalized Chinese market? No strong signs on the horizon, but I don't have the high-level contacts that PMI does. I just bottom feed what hits the net.


• This month they've released a line Marlboro Kreteks (clove cigarettes) in Indonesia. Marlboro is a big seller among traditional "white stick" cigarettes in the market, but Kreteks still reign supreme. Kreteks have mades some inroads in western markets for young hipsters wanting an international feel. The Indonesian market is one of the world's largest, but one wonders if this could alsobe a way to eventually attach a familiar name with an exotic twist for the specialty stores of Europe and North America...

Meanwhile, PMUSA has invested US$350 million in a research facility to open next month. The facility will be mirrored on the pharmacutical industry, which must use scientific proof to push new drugs and even drug-related language onto the market. This comes in the face of a Democratic Congress that may lead the way to give t he FDA the authority to regulate tobacco products.

Overall PMI is doing quite well, while PMUSA is down. And with the North American Market continuing it's slide into regulated and socially-disdained oblivion, the future doesn't look so bright.

Profile of smoking bans in Kenya...

Smoking bans are becoming more prevelant throughout the African continent, because the African continent has nothing else to worry about.

From The East African

Kenya’s besieged tobacco industry is toying with the idea of covertly sponsoring dozens of litigants to sue city and town councils who have banned smoking in public areas for infringing on their constitutional right to smoke, even as more towns line up to impose similar bans.

Some industry players are, however, concerned that a vigorous fight-back by the sector will be counter-productive, attracting international attention to the issue.

Last week, Kenya’s capital Nairobi became the latest urban area to outlaw public smoking, following in the footsteps of the smaller municipalities of Nakuru, Kangundo and Mombasa. Nakuru, Kenya’s fourth largest city, pioneered the bans three months ago.

Other Kenyan cities expected to pass smoking curbs in the next two weeks include Eldoret and Kisumu. Uganda’s tobacco control lobby welcomed the Kenyan bans, pointing out that they were in line with those in such cities as New York, London and Dublin.


bla, bla, bla...


The bans by the Kenyan town and city councils are the second prong of a strategy devised by the country’s tobacco control activists, who have long complained that the enactment of national control legislation has been blocked by vested interests for more than six years.

As a result, Kenya’s Tobacco control Bill has been published every year since 2001, but has always lapsed and never been passed into law. Last week, however, the Bill went through its second reading and indications are that it will be passed before parliament goes on recess in August.

The 61st Tobacco Science Research Conference

The 61st Tobacco Science Research Conference will be held in Charlotte, North Carolina September 23-26, 2007. Wattenspapier, a delfort-group company will host the conference at the Hilton Charlotte University Place Hotel.

“Frontiers in Tobacco Biotechnology” is the topic of this year’s symposium. A variety of experts have been invited to share their views on this diverse topic. The symposium will be followed by two days of scientific paper and poster presentations.

For more information about the conference, sponsorship opportunities, abstract submissions, visit: www.tsrcinfo.com.