British American Tobacco Factories in Russia Massively Undervalued
Minority shareholders in two British American Tobacco Plc Russiansubsidiaries, together generating 24% of the tobacco giant's entire Europeanproduction, reacted strongly today against values placed on the companies forthe purposes of a forced buyout.
The shareholders said a BAT announcement last week that BAT-Yava OJSCwill be valued at US$0.60 per share implies a total value for the massiveMoscow plant of just US$227 million, a small fraction of its believed worth.
Branston Holdings Limited, one of the largest independent shareholders inBAT-Yava, issued a statement rejecting the company's valuation and announcingplans to commission an independent valuation of both BAT-Yava and BAT-STF, aBAT company which owns another major factory whose minority shareholders faceefforts by the company to squeeze them out.
Branston director Konstantin Kirichenko dismissed as "absurd" figuresreleased by BAT to the media last week. At the same time, he said BAT's lowvaluation dramatically illustrates why the two sides are in dispute. Minorityshareholders believe the company has been engaged in an effort to shift valueaway from the factories and into other companies controlled by BAT, deprivingthe minority shareholders of participation in BAT's commercial success.
In legal challenges launched in Russia and the Netherlands, Branston,acting on behalf of itself and other shareholders, alleges that BAT has usedcompanies it secretly controls to circumvent a Russian law requiringinterested-party transactions - deals with suppliers or buyers controlled byBAT - to be authorized by independent shareholders.
Branston believes some US$1.6 billion in such interested-party deals have taken place at BAT-Yava over the past five years. One consequence has been the derisory dividends paid out by BAT-Yava - just US$5 million throughout that period, and no dividend at all this year.
At the heart of the scheme are two special-purpose vehicles (HamultunB.V. and Fiorano B.V.) which Branston believes were used by BAT to out-voteother minority shareholders in BAT-Yava and BAT-STF on interested-partytransactions. BAT has denied that it controls Hamultun and Fiorano, butevidence from a former BAT-Yava legal counsel and board member contradictsthis.
Branston and other shareholders have raised these concerns and repeatedlysought clarifications from BAT headquarters in the UK. In apparent response,Hamultun B.V. two months ago sold some of its shares back to BAT, bringingBAT ownership in BAT-Yava above 95%, the key threshold allowing the companyto force other minority shareholders to sell their shares.
For their part, Branston and other shareholders plan to continue theircurrent legal challenges and intend to take additional steps in England.
Branston has called on all independent shareholders in both the Yava andSTF companies to take measures to resist BAT's buyout attempt and to await afair evaluation of their assets.
