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Contenders Emerge in Bulgaria’s Tobacco Privatization Bid

October 16, 2003


( Research Service)- After failing in initial privatization efforts 6 months ago, the Bulgarian government is again trying to sell off the state-owned Bulgartabac. Today it was reported that “mastodon” international British-American Tobacco has confirmed its interest in acquiring the company. BAT is thought to be the front runner in a three-way race with Phillip Morris and Gallagher, which have also submitted their own letters of intent.

The original deal- with Germany’s Deutsche Bank- was allegedly dragged down by Bulgartabac’s less appetizing component companies. As a whole, Bulgartabac comprises 12 processing factories, 9 cigarette factories plus an additional 5 cigarette factories in Russia, Ukraine, Romania and Serbia. However, some of these are loss-making entities that did not have much appeal for the international investor.In that light, a new strategy was debated by the Bulgarian government- to divide Bulgartabac into several entities and sell them individually, starting with the least profitable and saving the best for last. This is envisioned to be conducted in 5 privatization rounds, dumping the loss-makers first and saving for last the most profitable plants, in Blagoevgrad, Sofia, Stara Zagora and Plovdiv. It was also reported this week that the plan has gotten the go-ahead for Bulgaria’s economic leaders.

Nevertheless, the government hopes its new strategy will net up to 300 million euros. The Ministry of Agriculture stated that it believes at least 2 subsidiaries can be moved before the end of this year.

Tobacco privatizations have netted record sums for governments in Serbia, Italy and Morocco in recent months. International corporations have just over a week to submit bids for Tekel, Turkey’s state-owned cigarette arm. This sale will be at least ten times bigger than Bulgartabac’s, owing to the sizes of the company and Turkish market. Should BAT or Philip Morris decide to drop a small fortune for the Turkish operation, it could adversely affect their appetite for a big Bulgarian bid.

Another interesting factor affecting the Bulgartabac sale is again a Turkish dimension. One of the sticking points in April’s negotiations was the collective fate of tobacco workers under any future owner. Most of the affected workers are Bulgarians of Turkish origin. Their interests have been protected by leader Ahmed Dogan of the Movement for Right and Freedoms, a Turkish party within Bulgaria’s ruling coalition.

Interestingly enough, Dogan has taken a nationalistic stance by criticizing the West, claiming that American opposition to a new presidential security appointment amounts to “interference in the state’s internal policies.” Bulgaria’s government has over the past couple years come to bask in the US’ adulation. It remains to be seen how the “Asparuhov Affair,” as the above story discusses, will effect business negotiations with Western companies.

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