By Chino S. Leyco
British American Tobacco (BAT), one of the world’s leading multinational companies, will close its Philippine operations by the end of December this year amid “difficult environment” and after the cigarette-firm’s failed attempt to buy into homegrown cigarette manufacturer Mighty Corporation.
The company is set to announce its decision to its employees today. It will officially close shop by end-December this year.
Manila Bulletin Business sources confirmed that BAT Philippines started winding down operations after Japan Tobacco International (JTI) acquired Mighty for P46.8 billion in September this year, a big letdown for the British multinational tobacco company.
“JTI’s acquisition of Mighty was a really big, big letdown for BAT because they were already at an advanced stage when the Japanese came at the eleventh-hour. The Wongkuchings even wanted BAT to buy their company, but they had no choice after they made one big mess,” a source said. The government had filed three tax evasion cases against Bulacan-based Mighty and its top executives for a total of P37.9 billion in unpaid excise taxes due to alleged use of fake tax stamps. The Justice Department already dismissed the complaints.
BAT’s plan is to cease Philippine operations on December 31 this year, several government and industry sources said.
Sought for comment, BAT Philippines confirmed its forthcoming closure, citing the company has been “operating in a difficult environment for some time.”
“Given our small-scale operation, the highly consolidated nature of the market in the Philippines and the lack of inorganic opportunities, we have concluded that it is not sustainable for us to maintain a presence in the market. Consequently, we will be closing our current operations by the end of the year,” the company said in a statement to Manila Bulletin.
Meanwhile, BAT Philippines said “the priority is to support impacted colleagues at this time. The company will continue to monitor market and industry developments and, if the conditions are right, is open to the possibility of investing in the Philippines again in the future.”
This is not the first time BAT is pulling out of the Philippine tobacco industry.
In 2009, the maker of Lucky Strike cigarettes left the country after the controversial decision of the Supreme Court disfavoring one of its brands – Pall Mall. BAT had claimed that the domestic industry did not have a level playing field.
But in 2012, BAT reestablished its presence in the country amid plans of the Aquino administration to pass a new excise tax law that was aimed at a fair and level playing field, removing the tax distinction between old brands and new cigarette brands.
“Now that JTI controls more than 25 percent of the Philippine tobacco industry after its recent acquisition, while PMFTC [Inc.] maintains its dominant position, no doubt that this hostile environment will continue to take a toll on BAT if they will keep its local unit,” a source explained.
Overall, BAT Philippines has an only one-percent share of the 100-billion stick tobacco market in the country.
“Mighty was really their last call to successfully penetrate the Philippines, without Mighty, it’s near to impossible they can compete with the heavyweights in this market,” the source added.
In its return more than five-years ago, BAT Philippines had announced it would pour $200 million into the country within a five-year period, following the government’s approval of the controversial Sin Tax Reform Law.
James Michael Lafferty, BAT Philippines country general manager said in September 2014 that the London-based cigarette company already “crossed the $100-million mark” in terms of its investments in the country.
Lafferty said the amount was spent mainly in improving the distribution aspect of their business in the Philippines.
BAT has a market-leading position in over 50 countries and operations in around 180 countries. Its four largest-selling brands are Dunhill, Lucky Strike, Kent and Pall Mall, with others including Kool, Benson & Hedges and Rothmans.