ETI was put up for sale in 2002

British American Tobacco has bought the state-owned Italian tobacco firm Ente Tabacchi Italiano (ETI) for 2.3bn euros ($2.59bn;�1.6bn).

The deal will give BAT, the world's second largest cigarette group, a key position in Europe's second largest tobacco market where 26% of adults smoke.

ETI has a 26% share of the Italian market through its MS and Sax cigarette brands.

But analysts said BAT had paid over the odds for the Italian group and that the deal may not prove profitable for the tobacco giant.

Lucrative for some

"I think the acquisition looks expensive and could also be value destructive," said Anthony Geard, an analyst at Investec.

Analysts also suggested the world's number one player Philip Morris, which commands more than 60% of Italy's cigarette market, would immediately renegotiate its contracts with ETI.

ETI owns lucrative rights to distribute some Philip products for Philip Morris, but only until 2005.

One group likely to be please by the deal is the Italian government.

Selling the state tobacco firm is expected to net it about 1.2bn euros, according to reports - a welcome profit for a government struggling to cut its budget deficit and its public debt.