Japan Tobacco Said in Talks for $5 Billion Reynolds Assets

Source from:  Bloomberg 09/25/2015

Japan Tobacco Inc. is in talks to buy cigarette assets from Reynolds American Inc. as the company seeks to expand outside of its shrinking home market, according to people familiar with the talks.

The Japanese firm may acquire assets worth about $5 billion, including some of the Natural American Spirit tobacco brand that is part of a Reynolds operating company, said the people, who asked not to be identified because the information is private. While discussions are advanced, talks could still fall apart and the size of the deal and the makeup of the assets could still change, they said.

The former Japanese tobacco monopoly has sped up acquisitions of brands and products abroad in the face of a shrinking population and a stagnating smoking rate at home. Japan Tobacco has said its priority is investing to boost the competitiveness of its tobacco businesses, which led to its withdrawal from drinks and vending machines.

Japan Tobacco President Mitsuomi Koizumi said in February that 2015 would be the company's "year of investments," including increased stakes in other types of tobacco products such as e-cigarettes.

Reynolds, based in Winston-Salem, North Carolina, is the second-largest U.S. tobacco company. It completed its acquisition of Lorillard Inc. in June for about $25 billion, adding the Newport cigarette brand and selling some of Lorillard's other brands to Imperial Tobacco Group.

Reynolds' Santa Fe Natural Tobacco Company, which owns Natural American Spirit, reported $658 million of revenue in fiscal year 2014, compared with $572 million in 2013, according to data compiled by Bloomberg. The brand is facing pressure from the U.S. Food and Drug Association, which sent a letter to Reynolds on Aug. 27 stating that the company needs to prove cigarettes they've labeled as "natural" or "additive-free" are less harmful in order to keep marketing them that way.

A spokesman for Reynolds said the company doesn't comment on rumor or speculation. A representative for Japan Tobacco didn't have an immediate comment.Enditem