With Europe's second largest tobacco market at stake the multinational heavyweights were not slow to throw their hats in the ring when Italy's state-owned monopoly Ente Tabacchi Italiano came up for sale last week. Paddy Agnew reports
It gets in your eyes. Walk into any bar in Italy, or even sit down on the pavement outside to enjoy your cappuccino, and it is not long before it hits you, straight in the face. We are talking smoke, tobacco smoke.
Even the casual tourist soon comes to understand that Italy retains a peculiarly Mediterranean attitude to cigarette smoking. From restaurant to bar to workplace, it is obvious that this is a country where the anti-smoking brigade has yet to make serious inroads.
Perhaps that might explain just why some of the biggest mulitnational heavyweights in the tobacco industry threw their hats into the Roman ring last Monday to express an interest in buying the state-owned monopoly Ente Tabacchi Italiano (ETI), the anomalous tobacco distributor and manufacturer in what is Europe's second largest market.
As part of an ongoing privatisation programme intended to reduce Italy's huge public debt, the Italian government intends to sell its 100 per cent stake in the company, hoping to realise between €1.4 and €1.5 billion.
ETI has inevitably attracted a lot of attention, not only because of the size of the Italian market but also because of its recent impressive returns, following a radical restructuring process begun four years ago.
In 2001, the company returned net profits of €107 million euro on a turnover of €1.738 billion euro.
Key to the ETI success story is the fact that the company has the lucrative rights to manufacture and distribute Philip Morris products (including Marlboro) in Italy until 2005. Italians, it seems, now prefer American cigarettes with the Philip Morris brands commanding about 62 per cent of the Italian market.
Through its own brand of cigarette, MS, ETI itself controls about 30 per cent of the home market while the company also manufactures the upmarket Toscano cigar. The Toscano is so popular among afficionados that an unlikely, across the board alliance of smokers, parliamentarians and environmentalists has been formed with a view to guaranteeing the integrity of one of Tuscany's least-known traditional products.
This particular lobby argues that the Toscano is on a par with chianti, funghi porcini and extra virgin olive oil and is in fact a symbol of Italy and Tuscany.
The Toscano enthusiasts are concerned that an uncaring multinational buyer of ETI might simply move production of the Toscano out of Italy.
While the Toscano lobby expresses its doubts, the Treasury Ministry is probably more than delighted with the runners and riders initially declared for this privatisation.
Among those multinationals which have expressed an interest to government advisers, Goldman Sachs, are British American Tobacco (the second largest group in the world and producers of Kent, Dunhill and Pall Mall), the Franco-Spanish group Altadis (producers of Gauloises), Japan Tobacco and Swedish Matches.
Leading the home defence is a luxury goods consortium of Italian shakers and makers, called Imprenditori Associati and including Ferrari president Mr Luca di Montezemolo, Tods footwear owner Mr Diego della Valle and Mr Alessandro Benetton of the clotheswear multinational. Other Italian candidates are the Italian Tobacco Federation consortium Tabacci Associati, the Sicilian holding fund Equinox (which may yet go in with Altadis), and games company Lottomatica.
The Treasury Ministry has until next June to adjudicate this sale. Complicating factors over the winter could be the attitude of Philip Morris (banned itself from competing but entitled to cancel its distribution contract should ETI change hands) and also the likelihood that some buyers (British American Tobacco) may be interested in just the production side of ETI's business and not the distribution aspect although the government dismissed this prospect on Friday.
If the company were split, that might soften the bitter pill for Philip Morris and avoid the possibility of the US company pulling out.
This privatisation, the first enacted by the Berlusconi government, is the latest in a series that has involved huge state companies such as national airline carrier, Alitalia, state electricity supplier, ENEL, shipmakers, Fincantieri and state telephone company Telecom Italia, to name but the most obvious.
Unlike the forementioned, however, ETI will be sold off, lock, stock and barrel whereas the government has thus far retained a "golden share" in key groups such as ENEL and Telecom Italia.
Market conditions allowing, the cash-strapped Italian government intends to press on with its privatisation programme.
The government's three-year economic strategy programme, the DPEF for 2003-2006, stipulates that 37.58 per cent of ENEL, 32.4 per cent of Alitalia and the state's remaining 3.4 per cent holding in Telecom Italia are all due to come on the market.
In the meantime, however, by next June there may be a foreign company (or two) in Rome glad to report that smoke has got in their eyes.
