Only three companies have remained to bid for the privatization of Bulgaria’s state-owned Bond cigarette-making giant Bulgartabac Holding, and only one of them is a strategic investor – British American Tobacco. In addition to BAT, only two companies registered in Austria – CB Family Office Services and BT Invest – have remained to bid for the purchase of a majority stake in Bulgartabac.

A total of 10 companies bought documents for the tender for the privatization of Bulgartabac Holding but only these three have notified Bulgaria’s Agency for Privatization and Post-Privatization Control that they meet the preliminary requirements for bidding by Monday, which was the deadline.

British American Tobacco came close to buying Bulgartabac back in 2004 but the deal was allegedly halted by the ethnic Turkish party DPS (Movement for Rights and Freedoms), which was a junior coalition partner in the government of Simeon Saxe-Coburg (2001-2005); DPS acted out of concerns regarding its voters, many of whom are tobacco growers.

BT Invest is an Austrian investment fund, while CB Family Office Service is a consultancy based in Graz, Austria.

The Bulgarian Privatization Agency is supposed to issue certificates for the registration of British American Tobacco, CB Family Office Service, and BT Invest by July 25, 2018; the dealine for purchasing information memorandums for Bulgartabac Holding is the same. Thus, the three bidders will be able to submit their binding offers by August 29, 2018.

In addition to BAT, three of the four major companies that were expected to bid for Bulgartabac have dropped out of the tender – Japan Tobacco International, Philip Morris Bulgaria and South Korea’s KT&G Corporation.

The other four droppers are Bulgarian law firms Kambourov & Partners and Dzhingov, Guginski, Kiuchukov and Velichkov; Bulgarian-based King’s Tobacco, which purchased Bulgartabac’s former plant in Plovdiv; and US-based Science Capital management LLC.

A majority stake – 79,83% – in Bulgaria’s state cigarette producer Bulgartabac Holding, whose management has been harshly criticized in recent years, was put on sale on April 26 after years of procrastination.

The long-delayed procedure was officially given the go-ahead by the agency for privatization and post-privatization control through an announcement in the State Gazette on May 10, 2018.

The agency invited strategic and financial investors to buy tender documents by June 10. Binding offers have to be filed by the end of August.

The bidder with the highest offer will be selected for buyer. No initial price has been set.

The buyer of Bulgartabac is expected to be known in September.

The consultant for the Bulgartabac sale, Citigroup Global Markets Ltd, was picked by the Bulgarian government in February 2017.

Two of the less profitable plants of Bulgartabac holding – in the cities of Plovdiv and Stara Zagora – were sold in 2009 through the Sofia Stock Exchange – for BGN 31 M and BGN 18 M respectively.

The holding currently owns the two larger and more consolidated factories in Sofia and Blagoevgrad and a processing factory in Yasen near Pleven, as well as a number of commercial brands.

The three law firms – Kambourov & Partners and Dzhingov, Guginski, Kiuchukov and Velichkov; and US-based Science Capital management LLC – were believed to have been bidding on behalf of unknown players. Back in 2002 the second firm made a bid on behalf of Tobacco Capital Partners but the privatization was not finalized.

According to the Bulgarian Privatization Agency, Bulgartabac should have a new majority owner by September 6, 2018. The expected price of the sale is still unclear. The price has a weight of 35% in the government’s privatizaiton decision, while the obligation of the new owner to buy out a minimum required quantity of tobacco has greater weight – 60%; the proposed future investments for the next two years “weigh” only 5%.

The set conditions require that the buyer be a strategic or financial investor. Financial investors are required to have had shares worth at least EUR 1 B in the past three years, and own capital amounting to EUR 30 M.

Strategic investors need to have had income from sale of tobacco products of at least EUR 1 B over the past three yearss, and the capacity to process 12 000 tons of tobacco and 35 billion cigarettes per year.

According to press reports, back in 2004, then Bulgarian Deputy PM Lidiya Shuleva lost her post under pressure from the DPS party when she came close to signing a privatization deal with British American Tobacco for two of Bulgartabac’s plants – the one in Blagoevgrad and the one in Plovdiv, which is now owned by King’s Tobacco.