Thursday, September 25, 2003

Merger news update RJR a merger target? R.J. Reynolds 's announcement of massive job cuts, may mean that the company is preparing for a takeover, according to a Wall Street Journal article ("RJR to Reduce Work Force 40%; Merger Talks Seen," 9/18/2003). The artcile posits that the cost reductions will make the cigarette company a more desirable target. The suitor? British American Tobacco (Brown & Williamson). In recent months, according to the story, "RJR and Brown & Williamson have held periodic discussions to merge their U.S. tobacco operations." The combination would control 33% of the market, making it more of a competitor for Altria/Philip Morris, which controls 49%. In fact, according to an earlier WSJ story ("RJR, BAT Discuss Merger in U.S.," 7/9/03), the two companies are " squeezed between brutal price competition from deep-discount brands and an aggressive marketing push by Marlboro maker Philip Morris." Blockbuster and Columbia House Blockbuster, the number 1 video rental chain, is involved in merger talks with Columbia House, the mail-order DVD and CD sales organization. As noted in a WSJ article ("Blockbuster, Columbia House in Merger Talks," 9/19/2003), "such a combination could create a formidable retailer of digital video discs to compete with mass merchants that have helped fuel DVD sales with discounted prices." The background story has to do with the flat nature of the video rental business. While Blockbuster now controls 40% of all video rentals, the whole industry now competes with inexpensive for-sale DVDs, plusit includes the high cost of stocking recent big hits, hits that taper off rapidly. It's also under threat from the prospect of more DVD piracy and also legal high-speed video-on-demand. It appears that Viacom, which owns Blockbuster, would be quite willing to spin the sinking division off. It almost did so a few years ago. Aluminum merger In a major consolidation in the aluminum industry, Canada-based Alcan has been given the regulatory green like for the hostile takeover of France's Groupe Pechiney. Alcan is the #2 aluminum company in the world, while Pechiney is #4. Both companies have worldwide holdings in terms of smelters and manufacturing plants. The combination would closely rival the #1 company, US-based Alcoa. This merger was tried before (in 1999), combined with Swiss aluminum maker Algroup, but ran afoul of antitrust regulators then. It looks like the new merger, which does not include Algroup, will be allowed. BP and Russian oil British petroleum (BP) completed its merger (50% buy) with Russian oil conglomerate Tyumen Oil Co. (TNK). The merger will make BP the world's #2 publicly-traded oil and gas producer, second only to ExxonMobil, and ahead of Royal Dutch Shell. This is the biggest foreign investment deal in Russian history, at over $6 billion. 6:20:53 PM

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