Not the Way to Santa Fe


Canadian tobacco company Rothmans Inc., caught in a bidding war with R.J. Reynolds Tobacco Holdings Inc. for a small New Mexican cigarette maker, said it doesn't plan to increase its offer for Santa Fe Natural Tobacco Co.

But Rothmans, which started the bidding for privately-held Santa Fe Natural in September, said it expects to receive an $11 million termination fee if R.J. Reynolds prevails. "At present, Rothmans does not contemplate increasing the value of its enhanced offer announced on Nov. 30," the cigarette maker said in a statement.

Earlier this week, RJR raised its offer for Santa Fe Natural to $340 million in cash from $320 million. The revised RJR bid for Santa Fe Natural, maker of additive-free American Spirit cigarettes, came after Rothmans increased its offer of cash, stock and other securities last Friday to $353.7 million from its initial bid of $275 million, according to the Associated Press.

Santa Fe's board of directors has said it plans to withdraw its support for the Rothmans transaction and recommend the RJR deal to shareholders.

RJR's offer includes terms from the original agreement: Santa Fe Natural would continue to operate from its Santa Fe, N.M., headquarters as a wholly owned, independent subsidiary of RJR, which operates the second biggest U.S. tobacco company with brands like Winston and Camel.

Rothmans had said its original deal with Santa Fe in September requires the New Mexico-based company to pay a breakup fee of $3 million if it chooses another offer. But in its statement, the Canadian company quoted a breakup fee of $11 million in two installments -- $3 million at the breakup date and $8 million later, the report said.
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