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Rating Action:

MOODY'S CONTINUES ITS RATINGS REVIEW PROCESS OF BRITISH AMERICAN TOBACCO PLC AND GUARANTEED SUBSIDIARIES.

28 Oct 2003
MOODY'S CONTINUES ITS RATINGS REVIEW PROCESS OF BRITISH AMERICAN TOBACCO PLC AND GUARANTEED SUBSIDIARIES.

Madrid, October 28, 2003 -- Madrid, October 28, 2003 -- Moody's Investors Service commented that it is continuing and expanding its ratings review process for possible downgrade on the Baa1 long-term senior unsecured ratings of British American Tobacco plc (BAT) and all its guaranteed subsidiaries, following BAT's announcement of the plan to combine Brown & Williamson's (B&W) US domestic business with R.J. Reynolds in a new holding company, Reynolds American Inc, which will be 42% owned by BAT through its 100% owned subsidiary B&W Inc.. The proposed transaction will be subject to anti-trust clearance, to a vote of R.J. Reynolds shareholders and to the receipt of Internal Revenue Services rulings. This transaction is not expected to close before mid 2004. B&W will be provided with an indemnity for all existing and any future litigation relating to the US tobacco business.

The initial review was initiated on July 17, 2003, when BAT announced the acquisition of Ente Tabacchi Italiani S.p.A. (ETI) in Italy, for EUR2.3 billion in cash. Moody's announced on September 16, that it was continuing its review process awaiting for the result of the privatization process in Turkey in which BAT is bidding for Tekel.

BAT's short-term debt ratings were not placed on review originally and have been now affirmed at Prime-2.

In addition to the existing review focusing on (i) the impact on the financial flexibility of BAT of the recent ETI debt-financed acquisition; (ii) the other initiatives pursued by the company including the share buy-back program as well as other potential acquisitions including Tekel in Turkey; and (iii) the execution risks of recent acquisitions, Moody's will now broaden the scope of its review to focus on:

1) the potential implications of the combination of the businesses of B&W US operation and RJR, on the business and financial risk profile of BAT

2) the implications of the arrangements between the parties regarding the litigation risk in the US.

3) the cash-flow potential of the new entity and the impact on the credit metrics of BAT

The review process is not expected to be concluded before it is known whether BAT is successful in its bidding process in Turkey and also Moody's has determined the full implications of the recent announcement affecting the US operations.

Headquartered in London, England, BAT is the world's second-largest listed tobacco company after Philip Morris, and significantly ahead of the third-ranked company, Japan Tobacco. BAT's products are distributed in the USA through its 100%-owned US subsidiary, Brown & Williamson. BAT currently has a 14.6% global market share, selling some 777 billion sticks in 2002 in around 180 markets throughout the world. BAT enjoys a leadership position in more than 50 countries through its diverse portfolio of brands, which includes well-established international brands such as Lucky Strike, Kent, Dunhill and Pall Mall. BAT also has interests in cigars and loose tobacco, complementing its activities in the ready-made cigarette sector. The Group has a global market share of almost 15 per cent and more than 300 brands including international brands such as Lucky Strike, Kent, Dunhill and Pall Mall. B&W is the third largest cigarette manufacturer and marketer in the US. It is a 100 per cent subsidiary of British American Tobacco. As at 31 December 2002, B&W's US Business had net assets, on the basis of UK GAAP, of $631 million. In the twelve months to 31 December 2002, B&W's US Business generated profits before interest and taxation, on the basis of UK GAAP, of $598 million ($325 million in the nine months to 30 September 2003, before non-recurring items).

Madrid
Carlos Winzer
Senior Vice President
European Corporates
Moody's Investors Service Espana, S.A.
JOURNALISTS: 33 1 53 43 93 78 SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
Managing Director
European Corporates
Moody's France S.A.
JOURNALISTS: 33 1 53 43 93 78 SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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