Japan Tobacco to Seek More Takeovers From 2009, Kimura Says

Source from:  By Maki Shiraki and Kazue Somiya Aug. 31 (Bloomberg) 09/03/2007

Japan Tobacco Inc., the world's third-largest cigarette maker, will seek more takeovers from 2009 to build on the 7.5 billion pound ($15 billion) purchase of Gallaher Group Plc, President Hiroshi Kimura said. Further acquisitions "would be realistic from 2009," Kimura said in an Aug. 29 interview. The integration of the British maker of Benson & Hedges cigarettes, purchased in April, will be completed in two years, he said. Kimura, 54, is seeking to expand overseas as cigarette consumption falls in the Tokyo-based company's home market, which accounts for 76 percent of sales. Japanese tobacco revenue slumped 13 percent in the first quarter as the nation's population declined and anti-smoking campaigns increased. Cigarette companies are merging around the world, enabling those that remain to charge more and offsetting higher tobacco taxes. Bristol, England-based Imperial Tobacco Group Plc agreed last month to acquire Spain's Altadis SA. The company, which is half owned by Japan's government, was "monitoring" opportunities and may move on an acquisition before 2009 if necessary, Kimura said. He did not speculate on possible targets. The maker of Mild Seven and Camel brand cigarettes is focusing on emerging markets in the Middle East and eastern Europe to expand sales. The company's international tobacco sales rose 25 percent to 273 billion yen ($2.35 billion) in the first quarter, led by revenue from Russia, Turkey, Iran and Spain. The company plans to spend an extra $100 million annually on advertising and promotional campaigns in its growing markets, Kimura said. Overseas Expansion Japan Tobacco, which acquired the non-U.S. cigarette operations of RJR Nabisco Inc. in 1999, has boosted its share of the global tobacco market to 10.8 percent from 7.5 percent with the purchase of Gallaher. It trails Altria Group Inc., the parent of Philip Morris International, which has an 18.2 percent share, and British American Tobacco Plc with a 12.3 percent share. Japan Tobacco is "unlikely to immediately" acquire another cigarette maker, said Daiwa Institute of Research analyst Tokushi Yamasaki. It would be interested in companies which increased its share in a particular market, he said. Japan Tobacco expects to achieve annual cost savings of at least $300 million by the end of 2010 as a result of its purchase of Gallaher. The acquisition adds Russia and Ukraine to the 10 nations in which it has either first or second biggest share. The company repeatedly discusses the prospects of the Japanese government selling its remaining 50 percent stake, Kimura said. The government last sold stock in 2004. Any further sale should "minimize any negative impact on equity markets to the greatest extent possible," he said. Japan Tobacco would consider buying back its own stock after a government sale to support the share price, he said. In December, former Finance Minister Koji Omi said the government would "eventually" fully privatize the cigarette maker. Enditem