Ethics fears just smoke and mirrors, says billionaire backing Big Tobacco15 Nov 2021 00:57
Monday November 15 2021, 12.01am, The Times
Ethics fears just smoke and mirrors, says billionaire backing Big Tobacco
A secretive Cayman Islands-based tycoon who has built a combined £5 billion stake in two of the world’s biggest tobacco companies is said to believe that the sector has been undervalued because investors have been “spooked” by ethical concerns.
Kenneth Dart, billionaire heir to an American foam cups fortune, has become one of the largest shareholders in the London-listed British American Tobacco and Imperial Brands and has continued to increase his stakes in recent months.
Dart’s Spring Mountain Investments vehicle has built a 7 per cent stake in BAT, worth £4.5 billion, and a 4.75 per cent position in Imperial, valued at £700 million. Dart’s stakes have intrigued analysts and investors as there has been a scarcity of buyers, partly because of concerns about the ethics and future of the tobacco industry. Some institutional investment funds actively avoid tobacco.
Dart, 66, has declined to comment on his investments, but according to sources he is a “value investor” who does not believe that the tobacco sector will “disappear tomorrow . . . They’ve invested in tobacco since the Seventies. They know the sector very well. They think because of ESG [environmental, social and governance] considerations investors are spooked. This sector offers very attractive valuations.”
Dart owned a stake in RJ Reynolds, the American group now owned by BAT. Shares in BAT have halved over the past five years since achieving their high point in June 2017 and Imperial by 60 per cent since a high in April the same year.
BAT owns Lucky Strike and Dunhill, while Imperial sells the JPS and Davidoff brands. The industry is under pressure from stricter regulation, greater health awareness and the increasing importance of ESG investment.
Philip Morris International, the owner of Marlboro, has said that its future is in “smoke-free” products and it has been buying into the medicines industry, including, controversially, the £1 billion acquisition of Vectura, the respiratory drugs company.
Dart has a reputation as an activist investor in distressed debt, which has raised speculation that his stake-building is motivated by further consolidation in the industry. Sources said, though, that the industry consolidation had “happened already . . . The reality is this is one of the most heavily concentrated sectors in [fast-moving consumer goods] now and it’s one of the most heavily regulated sectors. Any further combinations run very quickly into very significant anti-trust issues in a sector that is super-highly regulated and not exactly liked by the regulators. So there is a reason why you haven’t seen any major industry consolidation in the last five years.”
Dart is the scion of Dart Container, a Michigan-based family business. He moved from the United States to Grand Cayman in the early 1990s. He has invested heavily in the British ove
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