Imperial Misses Estimates; Altadis Takeover Delayed

Source from:  By Loveday Morris and Thomas Mulier Oct. 30 (Bloomberg)  10/31/2007

Imperial Tobacco Group Plc, the maker of John Player cigarettes, posted second-half profit that missed analysts' estimates and said its takeover of Altadis SA will be delayed until January. Net income rose 6.6 percent to 484 million pounds ($998.1 million) in the six months ended Sept. 30, according to full- year earnings released today, less than the 507 million-pound median estimate of 10 analysts. Chief Executive Officer Gareth Davis said he expects Spanish regulators to approve Imperial's 12.6 billion-euro ($18 billion) bid for Altadis "imminently." Imperial agreed to acquire Madrid-based Altadis in July, gaining new markets as smoking bans hurt consumption in Britain and Germany, sources for more than half its profit. The U.K. company still awaits regulators' approval for the deal, which it initially expected to complete by November. Altadis makes Gauloises cigarettes and Don Diego cigars. "The disappointment remains in the delay," Andrew Darke, an analyst at Evolution Securities in London, wrote in a note today. "We continue to believe that Imperial will realize considerable shareholder value in the Altadis deal." Darke has an "add" rating on the stock. Imperial shares were little changed in London, adding 4 pence, or 0.2 percent, to 2,447 pence. They have added 22 percent in the past year, giving the cigarette maker a market value of 16.6 billion pounds. Commonwealth Brands The U.K. company expects Altadis shareholders to accept the takeover by January, Davis said on a conference call today. Altadis, the world's biggest cigar company, gets most of its sales from France and Spain, increasing its allure for Imperial. The delay was caused by changes to takeover rules in Spain and is "frustrating," though it hasn't hurt the company financially, Davis said. The purchase would consolidate Imperial's position as the world's No. 4 tobacco company. Bristol, England-based Imperial bought Commonwealth Brands in April for $1.9 billion to accelerate growth in North America. There is opportunity for more consolidation in the industry in the form of smaller "bolt-on" acquisitions rather than larger "transformational" deals, Davis said. Imperial controls almost half of the U.K. cigarette market with brands such as Lambert & Butler. Commonwealth, the fourth- largest U.S. cigarette maker, owns budget brands such as Sonoma. Tobacco companies have increased sales in Russia, Taiwan and Poland as western European consumption drops about 2 percent a year amid smoking bans, higher taxes and prohibitions on advertising. Half the world's cigarettes are smoked in Asia. Smoking Bans Second-half sales at Imperial rose 5.9 percent to 1.77 billion pounds excluding tax. Analysts focus on that figure because duties represent more than half of revenue. Bloomberg calculated second-half figures by subtracting first-half results reported in April from today's full-year earnings. Full-year profit rose 6.3 percent to 905 million pounds, or 133.7 pence a share, as sales excluding tax increased 3.7 percent to 3.28 billion. Imperial sold 200 billion cigarettes in the 12 month period, a 7 percent increase on the previous year. Indoor smoking in public places, such as pubs, was barred throughout the U.K. when an English ban took effect July 1, and Germany prohibited smoking in public buildings last month. Consumption in England fell around 4 percent following the ban, more than expected, after the wettest British summer on record discouraged people going outside to smoke, Davis said today. Revenue from Germany fell 8.9 percent to 524 million pounds following the cessation of the make-your-own "Singles" product in the country and tobacco tax increases. Davis expects the so-called global credit crunch to have little effect on Imperial. "Tobacco is an extremely resilient sector and it always withstands bad times well," he said. Imperial raised its annual dividend by 12 percent to 69.5 pence a share. The dividend has more than tripled since the company became publicly traded in 1996. Enditem