Republic Tobacco Sale Update

Private-equity firms Carlyle, Pamplona said to be weighing bids

Published in CSP Daily News

GLENVIEW, Ill. -- Private-equity firms Carlyle Group LP and Pamplona Capital Management LP are among a handful of parties weighing bids for Republic Tobacco, a privately held company that makes the Drum brand of loose tobacco in the United States, people familiar with the matter told Reuters (see Related Content below for previous coverage).

These buyout firms are pursuing Glenview, Ill.-based Republic Tobacco even as some of their competitors, including Blackstone Group LP, CVC Capital Partners Ltd. and Advent International Corp. decided not to pursue a bid due partly to investor concerns about investing in controversial industries, the people said.

Pamplona, a London-based investment house backed by Russian tycoon Mikhail Fridman, has a different investor base from the largest U.S. private-equity firms, which count pension funds and social endowments in California and New York as some of their major limited partners.

Carlyle, Pamplona, Blackstone and Republic Tobacco declined to comment to the news ganecy.

Advent and CVC Capital Partners, which looked at, but passed on Republic Tobacco, according to the sources, did not respond to requests for comment. The sources asked not to be identified because the matter is not public.

Republic, which is said to be seeking as much as $2 billion according to some of the people, has also attracted interest from Britain's Imperial Tobacco Group Plc., one of the people said.

"We're always interested in potential acquisition opportunities, provided they would deliver value for our shareholders. We do not, however, comment on rumor or speculation," an Imperial Tobacco spokesperson told Reuters.

Japan Tobacco Inc. also expressed some interest in the auction of Republic Tobacco. Sources said Credit Suisse Group AG is running the auction of Republic Tobacco. Credit Suisse declined to comment; however, they cautioned that Japan Tobacco has had a long-stated strategy of staying out of the U.S. market where it sees high risk of litigation.

Its new president, Mitsuomi Koizumi, said last week the company was not considering expanding into the United States. When asked on Wednesday about its potential interest in Republic, the company said it does not comment on future acquisition possibilities, said Reuters.

Republic Tobacco has attracted only a small number of buyout firms partly due to the controversial nature of the business, according to the people familiar with the matter.

Tobacco companies are often seen as defensive investment plays because they trade in consumer staples, but cigarette smoking is in decline in many developed markets due to a shift in regulations as well as popular culture, said the report.

As a result, tobacco companies like Altria Group Inc., Reynolds American Inc. and Lorillard Inc. often rely on price increases to drive sales growth.

Republic Tobacco's major product lines include cigarette tobacco, cigarette papers, filtered tubes, accessories, pipe tobacco and cigars. Other brands Republic owns include Top tobacco and Job rolling papers.

Republic is owned by D.R.L. Enterprises, a holding company founded in 1969 by Chicago entrepreneur Donald Levin. D.R.L has businesses in aircraft, medical equipment, machinery leasing, film making and licensed sports product manufacturing. Levin's film company has made nearly 20 motion pictures distributed in the United States and overseas, featuring such stars as Emilio Estevez, Charlie Sheen, Sharon Stone, Rodney Dangerfield and Chuck Norris.