Gallaher agrees £7.5bn Japan Tobacco takeover

GALLAHER, the tobacco group behind Benson & Hedges, Silk Cut and Hamlet, today agreed to a £7.5 billion takeover from Japan Tobacco (JT).

The move, the biggest ever foreign takeover by a Japanese firm, will form the world's third largest tobacco company behind Marlboro maker Altria and British American Tobacco, numbers one and two respectively.

JT said the offer represented a 27 per cent premium to Gallaher's share price prior to the UK company's announcement last week that it was in discussions regarding a takeover. When debt was included, the takeover price was 9.6bn.

One analyst described the deal as "a strategy to survive", given that sales of tobacco in Japan, where JT has around 65 per cent of the market, are falling.

Over the six months to September, sales volume fell 4.7 per cent to 140bn cigarettes. Landing Gallaher, subject to regulatory and shareholder approval, would give the enlarged group an annual capacity of 600 billion cigarettes.

JT said the takeover would open up European and former Soviet nation markets where cigarette demand is picking up rather than declining.

"JT wants to boost its global market share with one big purchase," Fitch Ratings analyst Satoru Aoyama said. "We might say it is a strategy to survive."

And Marc Desmidt at Merrill Lynch Investment Managers, noted JT was getting "good growth in emerging markets" and "very strong cash flow".

JT said it was aiming to complete the acquisition in the first half of 2007 and would make Gallaher - which employs 12,000 people worldwide and is the world's fifth-biggest tobacco group - a wholly owned subsidiary.

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