Biggest-Ever Foreign Acquisition In Britain

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Dec 15 2006
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The Nihon Keizai business daily reported Japan Tobacco Inc. (TYO : JTI, 2914) announced on Friday it would buy Britain’s Gallaher Group Plc (LON : GLH) for $14.7 billion in the biggest-ever foreign acquisition by a Japanese company. Japan Tobacco (50 percent owned by the Japanese government) agreed to pay 11.40 pounds per share for Gallaher, the maker of Benson & Hedges and Silk Cut cigarettes.

The takeover could help Japan Tobacco offset declining cigarette sales in Japan and reinforce its position as the world’s third-largest tobacco firm behind Marlboro maker Altria Group Inc. (NYSE : MO, quote) and British American Tobacco Plc (LON : BATS). In Japan, where Japan Tobacco has a two-thirds market share, cigarette sales fell 1.3 percent in the six months to September from a year earlier to 2.02 trillion yen. Sales volume fell 4.7 percent to 140 billion cigarettes.

Shares in Japan Tobacco, which makes Mild Seven cigarettes and owns the Camel, Winston and Salem brands outside the United States, rose 3.1 percent to 597,000 yen on Friday.

Overseas cigarette sales have been Japan Tobacco’s main source of profit growth. It bought RJR Nabisco’s non-U.S. tobacco business for $7.8 billion in 1999, and in 2005 international sales volume overtook Japanese volume for the first time.

The deal is worth about 50 percent more than telephone operator NTT DoCoMo Inc.’s (TYO : NTT, 9437) $9.8 billion takeover of AT&T (NYSE : T) Wireless Group in 2000, the previous record for a Japanese international acquisition.

Japan Tobacco could sell off Gallaher’s German and Austrian distribution businesses to Altadis for $1 billion to get around any antitrust problems, analysts said.

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