Gallaher Group, the UK tobacco company that has been struggling to expand its overseas business, emerged yesterday as the winner of a bidding battle for Liggett-Ducat, the cigarette manufacturer and distributor that holds a leading 17 percent of the Russian market.
The $390.5m cash acquisition includes a state-of-the-art cigarette factory in Moscow. The $90m plant was opened a year ago by the mayor of Moscow for Liggett-Ducat, the Russian tobacco arm of Brooke Group of the US. It is understood that the plant was put up for sale several weeks ago, sparking a bidding war between leading tobacco companies including Philip Morris, maker of Marlboro in the US; Imperial Tobacco, Gallaher’s UK rival; and Japan Tobacco, which last year bought the international operations of Reynolds from RJR Nabisco. Gallaher will assume Liggett-Ducat debts of $56.4m.
The business is much bigger than Gallaher’s other venture into overseas markets – a factory in Kazakhstan. The group will be delighted to have secured such a boost to its overseas division. Last year it teamed up with Philip Morris to bid for Reynolds, but lost to Japan Tobacco. It then made a cheeky approach to Seita, the French tobacco group already planning a merger with Tabacalera of Spain. That approach also failed.
During the same period Imperial Tobacco, its main rival, was steadily making acquisitions, including Van Nelle Tabak, maker of Drum hand rolling tobacco, and Rizla cigarette papers. However Gallaher’s results in March – pre-tax profits rose 7 percent to L341m ($515m) – were good enough to spark a flurry of excitement in the depressed UK tobacco sector. That was despite a L3.7m charge against profits for the abortive attempt on Reynolds.
Nigel Northridge, who took over as chief executive on January 1, said the failure over Reynolds had “not affected my belief in this business”. There would be further opportunities for acquisitions or alliances and partnerships, as well as organic growth.
In the UK, Gallaher has maintained its leadership at the premium end of the market with Benson & Hedges and Silk Cut, while the Mayfair brand is a strong performer at the value end of the market. European sales last year were strong enough to shrug off the impact of economic problems in Kazakhstan and a fall in sales of the Sovereign brand to Russia. Reuters