BAT paid a 20% premium for Bentoel to buy its way into Indonesia's kretek market

Indonesia was the world's fifth-largest cigarette market and almost all of it — around 93% — smoked kreteks, clove-flavoured cigarettes made by a handful of local champions. British American Tobacco's own Indonesian unit held just 2% of the market with Pall Mall. In June 2009 BAT moved: it paid $494 million for an 85% stake in PT Bentoel Internasional Investama, the country's fourth-largest producer, buying from Rajawali Group and other shareholders at 873 rupiah a share, a 20% premium.

The logic was portfolio, not just price: Bentoel brought a 7% market share and kretek brands such as Star Mild, in a market where rivals Sampoerna (Philip Morris) held 27%, Gudang Garam 22% and Djarum 21%. BAT completed a tender offer in August 2009, taking it to 99.74% of Bentoel. Then, instead of running two companies, management merged BAT Indonesia into Bentoel — one BAT Indonesia share for 7.68 Bentoel shares — creating a single local champion that could also carry Dunhill and Lucky Strike.

Jeremy Pike, previously BAT's director for sub-Saharan Africa, took over as president of the merged company. Bentoel remained Indonesia's fourth-largest tobacco group behind Sampoerna, Gudang Garam and Djarum, and stayed BAT's listed Indonesian vehicle until January 2024, when the IDX delisted the stock after more than three decades on the exchange.

BAT jumped from a 2% share to Indonesia's No.4 cigarette maker; Bentoel revenue rose 27.4% in H1 2023 to Rp4.31 trillion before BAT delisted it in 2024.

Indonesia's growth and light tobacco regulation made it the key emerging-market prize while Western volumes shrank under taxes and bans.

Kretek's 93% dominance meant BAT could not win with its global brands alone; it needed a local manufacturer with accepted brands.

A 20% premium for the No.4 player was still cheaper and faster than building distribution and brand equity from a 2% base.

Merging BAT Indonesia into Bentoel removed duplicated costs and gave the acquired platform the group's premium brands to sell.

When a market is defined by a local product you don't make, organic growth is slow and branding alone won't fix it. Buying the established local challenger — even at a premium — is the fast route in.

Bentoel carried on as BAT's Indonesian operating company, adding Dunhill and Lucky Strike to its local brand list. By the first half of 2023 its revenue was Rp4.31 trillion, up 27.4% year on year, with net profit of Rp35.49 billion, up 121.8% — still the country's fourth-largest tobacco group. In January 2024 the Indonesia Stock Exchange formally delisted Bentoel, ending a listing that dated back to 1990.