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The report will evaluate the impact of the merger between the two companies which resulted in the capture of the largest market share in cigarettes manufacturing in Malaysia and the emerged of a “Winning Organization” tagline for British American Tobacco Malaysia Berhad. The submission is also a part of requirement for completion of FIN 745 – Managerial Finance subject. ? Merger This section will provide the basic elucidation from the academic view and the basic principles of a merger. ? Tobacco Industry in Malaysia

This section will provide the overview of Tobacco Industry players, market share and brand name in which the players presents. ? Background of Merger Case Study The background section will provides the merged companies and the information of the new emerge company resulted from the merger. ? Merger Transaction Details This section will provide transaction details of how the merger took and what had transpired during the merger process. ? Merger Results –Financial Performance Merger results will analyse the outcome from the financial performance perspective during and after the merger. ? Conclusion

This section will provide the conclusion of the merger which happened between Rothmans of Pall Mall (Malaysia) Berhad and Malaysian Tobacco Company Berhad. b) Merger 1. Definition of Merger Merger is defined as the combination of two or more firms, in which the resulting firm maintains the identity of one of the firms, usually the larger one. 2. Motives of Merger i. Growth or Diversification Firms that desire rapid growth in size of market share or diversification in their range of products ii. Synergy The synergy of merger is the economies of scale resulting from the merged firms’ lower overhead.

Synergy is most obvious when Horizontal merger take place as many redundant functions and employees can be eliminated. iii. Fund Raising Fund-raising merger motive happens when a “cash rich” firm merges with a “cash poor” firm. This will allow funds to be raised externally at lower cost as it will increase the borrowing power by decreasing its financial leverage. iv. Increased Managerial Skill or Technology Increased Managerial Skill or Technology happens when the merger motive is to adapt or combine the managerial personal skill or acquire the technology needed. v. Tax Considerations

Tax Considerations motive happens when a firm merge with another as acquire the target’s tax loss carryforward. The tax loss can be applied against a limited amount of future income of the merged firm. 3. Types of Merger i. Horizontal Merger Horizontal merger is a merger of two firms in the sale line of business. ii. Vertical Merger Vertical merger is a merger in which a firm acquires a supplier or a customer. iii. Congeneric Merger Congeneric merger is a merger in which one firm acquires another firm that is in the same general industry but neither in the same line of business not a supplier or a customer. v. Conglomerate Merger Conglomerate merger is a merger combining firms in unrelated businesses. c) Tobacco Industry In Malaysia There are three biggest manufacturers of cigarettes in Malaysia which together control over 90% of the legal market share. The three manufacturers are: 1. British American Tobacco Malaysia Berhad (BAT) Major shareholder of British American Tobacco is British American Tobacco Holdings (Malaysia) which hold 50%. BAT manufactures the cigarettes brands of Dunhill, Kent, Pall Mall, Peter Stuyvesant, Lucky Strike, Benson and Hedges and Rothmans.

BAT’s 2010 total net sales amounted to RM 3,965 million and profit after tax of RM 959 million. They are currently the market leader in Malaysia as they hold approximately 65% of market share in Malaysia. British American Tobacco Group the second largest global tobacco company with more that 700 million cigarettes sold in 2010. 2. JT International Berhad (JTI Malaysia) JT International Berhad is the Malaysian division of Japan Tobacco International. JTI Malaysia manufactures the cigarettes brands of Winston, Mild Seven, Camel and Salem.

JTI’s 2010 total net sales amounted to RM 1,205. 1 million and profit after tax of RM 178. 9 million. Currently JTI held almost 10 % of cigarette market share in Malaysia. Japan Tobacco International is the third largest global tobacco company with more that 500 million cigarettes sold in 2010. 3. Philip Morris (Malaysia) Sdn Bhd (PMM) Philip Morris (Malaysia) Sdn Bhd is wholly owned by Philip Morris International. PMM manufactures the cigarettes brands of Marlboro, L&M and Semporna A. Currently PMM held almost 15 % of cigarette market share in Malaysia.

Japan Tobacco International are the largest global tobacco company with more that 900 million cigarettes sold in 2010. d) Background of Merger Case Study British American Tobacco (Malaysia) Berhad (British American Tobacco Malaysia) emerged on 3rd November 1999 from the merger of Rothmans of Pall Mall (Malaysia) Berhad and Malaysian Tobacco Company Berhad. These two long established tobacco companies brought with the merger, experience and an unrivalled portfolio of highly successful international brands to create the largest tobacco company in the country.

British American Tobacco Malaysia manufactures and markets high quality tobacco products designed to meet diverse consumer preferences. Brand portfolio includes well-established international names like Dunhill, Kent and Pall Mall. 1. Rothmans of Pall Mall Rothmans of Pall Mall (M) Bhd was incorporated on September 1, 1961 and was listed on the Main Board of the Kuala Lumpur Stock Exchange (KLSE) on October 27, 1961. It involved in the manufacture, importation and sale of cigarettes, pipe tobaccos, cigars, the sale and distribution of luxury consumer products and the provision of travel services.

Rothmans Malaysia manufacture and markets Malaysia’s leading cigarette brand, Dunhill and other brands such as Peter Stuyvesant, Perillys, Rothmans and Winfield. Its financial year ended March 31, 1999 recorded a turnover of RM1. 95 billion and a pre-tax profit of Rm616. 6 million. 2. Malaysia Tobacco Company Malaysia Tobacco Company Bhd (MTC) was incorporated on September 28, 1956, and listed on the Main Board of the Kuala Lumpur Stock Exchange (KLSE) on July 1, 1978. MTC is principally involved in the manufacture, importation and sale of cigarettes and other tobacco products in Malaysia.

Through its subsidiaries, MTC is involved in the marketing and distribution of cigarettes, and the provision of travel services. British American Tobacco brands manufactured and marketed under licence by MTC include Benson & Hedges, Kent, Pall Mall, Lucky Strike and State Express 555. For its financial year ended December 31, 1998 MTC recorded a turnover of RM525 million and a pre-tax profit of RM23. 2 million. e) Merger Transaction Details Both Rothmans Malaysia and MTD have entered into an Asset Sale and Investment Agreement for the purchase of JPS, and a Sale and Purchase Agreement for the acquisition of MTCM.