JTI Buys Gallagher

Tobacco company merger could spur additional activity

Published in CSP Daily News

TOKYO & LONDON -- Japan Tobacco Inc. (JTI) on Friday agreed to buy British cigarette-maker Gallaher Group Plc (GLH) for $14.7 billion in cash, the biggest-ever foreign acquisition by a Japanese company, as speculated in a CSP Daily News story the same day.

Analysts said the takeover could help JTI offset declining cigarette sales in Japan and reinforce its position as the world's third-largest tobacco firm behind Marlboro-maker Altria Group Inc. and British American Tobacco Plc (BAT), according to a report by Reuters.

"JT [image-nocss] wants to boost its global market share with one big purchase," Fitch Ratings analyst Satoru Aoyama told Reuters. "We might say it is a strategy to survive."

Gallaher is the maker of Benson & Hedges and Silk Cut cigarettes in Europe. JTI makes Mild Seven cigarettes and owns the Camel, Winston and Salem brands outside the United States.

As exclusively reported in CSP Daily News, tobacco analysts at Citigroup Research speculated at JTI/GLH buyout could spur several other tobacco-company actions, including:

"Someone takes over Altadis. The most probable candidate is Imperial Tobacco, but BAT or (after say 24 months) JT/GLH are possibilities too. "Imperial is bought and broken up. It would need to be broken up because no single player could keep all of it, for anti-trust reasons."

The report defines those possibilities as:

If Philip Morris International bought Imperial, it would most certainly have to sell Germany, Australia, some UK brands and possibly most of the rest of Continental Europe. If British American Tobacco (BAT) bought it, there would be forced sales in Australia, Ireland, and for some UK brands. If JT/GLH bought Imperial, the UK/Irish business would have to go. Altadis would be too small to buy Imperial on its own.