Imperial Tobacco Agrees to Buy Altadis for €12.6 Billion

Source from:  By Julia Werdigier and Victoria Burnett Published: July 18, 2007 07/23/2007

Imperial Tobacco Group on Wednesday agreed to buy Altadis for €12.6 billion, gaining brands like Gauloises cigarettes and Cohiba cigars and control over one of the last large companies that was still available in a consolidating industry. Imperial Tobacco, the maker of Davidoff cigarettes and Rizla rolling papers, offered €50 in cash for each Altadis share, a 29 percent premium to the share price on March 14, the day before Imperial's first bid of €45 a share. If approved by shareholders of both companies, it will be the biggest acquisition in the tobacco industry in Europe, and end a four-month takeover battle with CVC Capital Partners, a private-equity firm. CVC has yet to say whether it plans to top Imperial's bid. Takeovers in the tobacco industry over the past eight months amounted to about $40 billion. Companies are looking for growth beyond mature markets and to deal with smoking bans and other anti-smoking measures that have hurt consumption. Japan Tobacco in December agreed to buy Gallaher Group, the maker of Benson & Hedges cigarettes in Europe, for £7.5 billion, or $15 billion, and Imperial earlier this year paid $1.9 billion for Commonwealth Brands to expand into America. With Altadis, Imperial will get a share of markets in Russia and Morocco and control over the world's top maker of cigars, a fast-growing industry with higher operating margins than cigarettes. Altadis is also attractive because it gets most of its sales from Spain and France, where consumption is more buoyant than in Britain, a country where Imperial has a 46 percent market share and the government introduced a smoking ban in public places at the beginning of this month. The combined company "will have a tough game to play in Europe, but there are lots of opportunities in emerging markets, like India, where there are 1.3 billion people and a lot of smokers," said Ivan Diez, a fund manager at Capital at Work Investment Partners in Madrid. The acquisition will also strengthen Imperial's position as the fourth-largest cigarette maker worldwide, narrowing the gap on JTI-Gallaher, the newly merged No. 3. Altria, owner of Marlboro, is the largest, followed by BAT, the British tobacco company that makes Lucky Strike cigarettes. Altadis said Wednesday it would recommend that shareholders vote in favor of Imperial's latest offer, which matches CVC's most recent approach, but added that it does so "in the absence of a competing offer at a higher price." Some analysts said CVC, which had bid for Altadis on its own after PAI Partners dropped out of a possible joint bid, may come back with a higher offer. But others, including Diez, said CVC is more likely to walk away because it cannot achieve the same cost savings. Recent jitters in the credit markets could also make it more difficult to raise debt to finance a higher bid. Imperial Tobacco's offer may also end speculation about being a takeover target itself, analysts said. The company's shares have risen 13 percent this year as investors bet that Altadis could team up with Altria to bid for Imperial to pre-empt its own takeover. "It's put-up or shut-up time both for private equity regarding Altadis and for Altria if it is truly interested in Imperial," said Charles Manso de Zuniga, a Dresdner Kleinwort analyst. Imperial Tobacco said it plans to raise £5.4 billion by selling new shares to fund the acquisition, which is valued at €16.2 billion, including debt. The company said it expects to save €300 million a year two years after the takeover and cost savings of about €470 million. Imperial Tobacco shares rose 34 pence to £22.35 in London. Altadis gained 40 cents to €48.50 in Madrid. Enditem