British American Tobacco (BAT) and Imperial Tobacco are considering bids for Tekel, Turkey’s state cigarette company, which is thought to be worth at least $1 billion (£508 million).

The Turkish Government plans to put Tekel up for sale in the first quarter of next year, after two earlier efforts to sell the business failed.

A BAT spokeswoman told The Times: “We have acknowledged the Turkish Government’s intentions to privatise Tekel and are following developments. We are always looking at possible acquisitions.” Imperial Tobacco declined to comment but is understood to be considering putting in a bid of its own.

Turkey is the world’s seventh-largest cigarette market, with about 100 billion cigarettes smoked every year. Tekel has a 40 per cent market share, with total sales of $8 billion (£4.1 billion). It manufactures cigarettes for both the domestic and export market. In 2005, Tekel reported a loss of 293.8 million Turkish lira (£105 million) and 552.4 million lira in net sales.

Andrew Darke, tobacco analyst at Evolution Securities, said that the sale of Tekel could be the next stage in a long-awaited round of consolidation in the global tobacco industry.

Last week, Japan Tobacco made a preliminary approach to buy Gallaher, the world’s fifth-largest cigarette manufacturer.

An independent audit of Tekel has nearly been completed and the tender process is expected to start in February. Imperial is understood to be interested, but only if it can obtain a relatively low price for the business. The company decided several years ago to take a different route to growing its presence in the Turkish market, by investing up to $50 million building a new cigarette factory there.

Japan Tobacco International (JTI) offered to pay $1.15 billion for Tekel in 2003, but the Turkish Government cancelled the deal.

Tobacco industry analysts believe that JTI could still be interested, but only if its efforts to acquire Gallaher, owner of Silk Cut and Benson &

Hedges, for up to £8 billion falls through. The group has a $9 billion cashpile, which would be depleted if its bid approach for Gallaher is successful.

Mr Darke said that Tekel was an attractive asset in principle, but much depended on any restrictions that the Turkish Government seeks to impose on the sale.

In 2004, the company failed to attract any bids because it insisted that any buyer would have to agree to maintain factories and use Turkish-grown tobacco.

Tekel’s alcoholic beverages unit was sold off in 2004.

Mr Darke said that Altria, which owns Philip Morris International, could also be interested in Tekel.

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