Japan Tobacco Inc yesterday said it had reached an agreement to buy British rival Gallaher Group Plc for ¥2.25 trillion (US$19.1 billion) including debt in Japan's biggest-ever corporate acquisition.
The friendly offer has been unanimously accepted by the Gallaher board of directors and Japan Tobacco plans to turn the British company into a wholly owned subsidiary, it said in a statement.
Japan Tobacco, a 50 percent holding of the Japanese government, said it would pay £11.40 per Gallaher share or a total of £7.49 billion (US$14.7 billion), and also take on the firm's interest-bearing debt.
The agreed price is the largest-ever corporate purchase by a Japanese firm, topping Softbank Corp's acquisition of the local operations of British mobile telephone operator Vodafone for about US$15.3 billion earlier this year.
Japan Tobacco markets brands including Mild Seven, Camel and Winston in about 120 countries and the takeover will give it extra muscle to take on world number one Philip Morris Cos Inc of the US.
Japan Tobacco shares closed up 3.1 percent at ¥597,000 on the Tokyo Stock Exchange after the company confirmed it had made an offer for Gallaher, whose products include Benson and Hedges and Silk Cut cigarettes.
Confirmation of the agreement came after the close of trade.
"For Japan Tobacco, the deal should be regarded as favorable if it allows the company to secure a bigger presence in Russia and and Europe," said Hiromi Miura, an analyst at Okasan Securities.
At the same time, however, investors may be concerned about the size of the acquisition and potential risks from smoking-related lawsuits in the future, Miura added.
As well as its foothold in its home market and Western European countries, Gallaher, the world's fifth-largest tobacco company, has a strong presence in Russia and the former Soviet republics.
The deal is expected to lift Japan Tobacco's share of the global market to 10.9 percent, consolidating its position as the third-largest tobacco company in the world, noted Mizuho Securities analyst Hiroshi Saji.
Japan Tobacco, which bought RJ Reynold's non-US operations in an US$8 billion deal in 1999, already controls more than 70 percent of Japan's domestic tobacco market.
But fewer and fewer people are lighting up here so the company has been focusing increasingly on Russia and other fast growing markets.
The percentage of Japanese adults who smoke fell to a record low of 29.2 percent, according to a company survey released in October last year.
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