Spain's Altadis backs €12.6 Billion Takeover by Imperial Tobacco

Source from:  The Associated Press July 18, 2007 07/20/2007

Imperial Tobacco Group PLC said Wednesday that it had finally won over takeover target Altadis SA, with the company recommending its €12.6 billion (US$17.4 billion) offer to shareholders. Imperial offered €50 (US$68.90) a share for the maker of Gauloises, Gitanes and Ducados cigarettes and Montecristo and Don Diego cigars. Altadis, which has rejected previous offers from Imperial as undervaluing its business, said it believed the offer, worth €16.2 billion (US$22.3 billion) when debt is included, was "fair" and "attractive." However, it also noted that it had recommended the bid "in the absence of a competing offer at a higher price" being filed with Spanish regulators, indicating it is potentially open to rival offers. The price offered by Imperial is the same as that offered by private equity firms CVC Capital Partners and PAI Partners in early May. Charles Stanley analyst Jeremy Batstone said Imperial's bid was an "opportunistic" one to take advantage of potential difficulties encountered by CVC in arranging financing. A combination of the two cigarette makers would also achieve greater cost synergies than a tie-up with a private equity firm. However, the chances of a rival offer were underscored by the fact the Imperial agreement with Altadis contains no breakup fees either way because of Spanish restrictions on the practice - meaning there is no obligation for either side to compensate the other should the deal collapse. The European tobacco industry has been consolidating recently, with multinationals buying each other to obtain economies of scale as cigarette sales decline in Western European markets amid smoking bans. Britain - a key market for Imperial - became the latest country to ban smoking in enclosed public spaces, including restaurants and pubs, on July 1. Imperial Tobacco CEO Gareth Davis said he expected the deal to close in the first quarter of the next financial year, noting that it would fall under Spain's new takeover laws that are due to come into force in the middle of next month. "Imperial Tobacco and Altadis are a great strategic fit, which will consolidate our position as the world's fourth-largest international tobacco company," said Davis. "This deal significantly enhances our operating platform and scale with an increased presence in profitable mature markets and improved emerging market opportunities." Batstone said there is "considerable strategic logic" behind Imperial's approach. Davis noted that Altadis' cigar business has a significant presence in the United States, where Imperial earlier this year bought Commonwealth Brands from Houchens Industries Inc. Those combined would give the larger group "considerable scale in this highly profitable market," he said. The headquarters of the combined company will be in Bristol, southwestern England, while the cigar and logistics businesses will be based in Madrid. Imperial, which makes Davidoff cigarettes, Golden Virginia loose tobacco and Rizla rolling papers, said it will save €300 million (US$413.6 million) in each of the two years after the purchase is completed. It also expects a further one-time €470 million (US$648 million) savings in production, purchasing, sales and marketing expense cuts. Davis said that Altadis CEO Antonio Vazquez will be invited to head the combined company's cigar and logistics businesses. Imperial first approached the Spanish-French company on March 15 with a nonbinding bid of €45 a share, then returned with a higher bid of €47 on April 10 but was rebuffed again. Altadis shares rose 0.8 percent to €48.50 (US$66.98) on the Madrid Stock Exchange. Imperial shares were up 1.5 percent at 2,235 pence (US$45.91; €33.32) on the London Stock Exchange. Enditem