Japan Tobacco Buys Belgium's Gryson

Source from:  Bloomberg,Saturday 05/29/2012

Japan Tobacco Inc. agreed to pay 475 million ($597 million) for Belgium-based Gryson NV to boost growth in Europe's roll-your-own cigarette market in the biggest purchase by a tobacco company since 2009. The maker of Camel and Mild Seven cigarettes will pay 12.3 times the estimated 2012 earnings for all outstanding shares of Gryson, the Tokyo-based company said in a statement Thursday. The purchase gives Japan Tobacco control of Gryson's Fleur du Pays brand, France's largest selling roll-your-own cigarettes. Japan Tobacco President Hiroshi Kimura has agreed to buy rivals in the U.K., South Sudan and Belgium since 2006 as sales volumes decline in Japan, where tax increases and an aging population damp demand. "They paid a little bit towards the top end, but it's reasonable," said Erik Bloomquist, an analyst in London at Berenberg Bank. "The business is growing volumes by about 4 percent. The brands are ones that Japan Tobacco International is pleased to have and they are going to invest more in the business. So for a growing business, that's a reasonable multiple." The global roll-your-own and make-your-own market grew 3.9 percent on average between 2000 and 2011, Japan Tobacco spokeswoman Mahoko Tsuchiya said. Western Europe accounts for about 75 percent of global demand for the cigarettes, which smokers make from paper and loose tobacco, she said. Bloomquist said the deal moves JT from the fourth-biggest seller of fine-cut tobacco in Europe to number three, behind Imperial Tobacco Group PLC and British American Tobacco PLC. The deal gives a "very clear read" that Japan Tobacco is not interested in buying Imperial, Bloomquist said. "Why do the deal to move to number three if you are going to go for number one?" The purchase of Gryson, which also owns the Orlando and Domingo brands and has operations in Luxembourg, Spain and Portugal, will be financed from cash and borrowing from banks and will have a "minor effect" on earnings this fiscal year, according to the statement. The transaction is set for completion this year, according to the statement. The acquisition is Japan Tobacco's largest since the 2007 purchase of frozen-food maker Katokichi Co. for about $1.4 billion including debt, according to data compiled by Bloomberg. The deal is the largest acquisition by a tobacco company since British American Tobacco's $644 million purchase of Bentoel Internasional Investama Tbk in June 2009, according to data compiled by Bloomberg. Japan Tobacco's domesticshare fell to 55 percent in the year that ended in March from 64 percent a year earlier after the March 2011 disasters curbed shipments.Enditem