Shares in British American Tobacco (BAT) fell by as much as five per cent today after it announced it was seeking a secondary listing on the South African stock exchange.

BAT lost 49p to £18.27 before recovering after luxury goods company Richemont and investment group Remgro, which are controlled by South Africa's billionaire Rupert family, said they would spin off a combined 27 per cent stake in BAT to shareholders.

The shake-up, which is being driven by impending tax law changes in Luxembourg, would place BAT in the top three companies on the South African exchange, with a market capitalisation of about 560 billion rand (£38 billion).

Despite being down more than five per cent this year, BAT shares had risen recently on rumours of a possible bid but today's news was seen by traders as reducing the likelihood of a takeover and the shares fell.

Jan du Plessis, BAT's chairman, said the board welcomed the changes, saying it “should result in the group having a more widely distributed shareholding and a broader range of both institutional and private shareholders".

"The dispersal of this major block of shares should also result in an increased FTSE 100 Index weighting from 75 per cent to 100 per cent. Richemont and Remgro have been highly committed and supportive shareholders since the merger of British American Tobacco and Rothmans International in 1999 and these proposals resolve the potential uncertainty over the long-term ownership of their shares,” he said.

The decision by the Rupert family to spin off the stake was driven by European Union regulations that will require Luxembourg to end tax breaks for holding companies in 2010.

BAT said it expects the Johannesburg listing to take place around the end of October, subject to Richemont and Remgro receiving the necessary approvals for their proposed restructurings.

The spin-off ends a long association between the tobacco industry and the Rupert family, which established Rembrandt Tobacco in South Africe in 1948.

The wealth created by Rembrandt was used to to build Richemont, the owner of the Piaget and Jaeger-LeCoultre brands, and Remgro, South Africa's largest investment company. The Ruperts set up Richemont in 1988 to hold Rembrandt's investments outside South Africa during the apartheid era, when sanctions limited investment in the country.

Rembrandt and Richemont sold their tobacco assets to BAT in 1999, obtaining stakes in the cigarette maker in return.

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