Japan Tobacco Inc. announced plans Friday to buy Britain's Gallaher Group PLC for 2.25 trillion yen ($19.1 billion) in reportedly the largest-ever corporate acquisition by a Japanese company.
JT, the world's third-largest tobacco company, was to finance its takeover of Gallaher, which owns the Benson & Hedges and Silk Cut brands, with its own cash and a Merrill Lynch loan, the company said.
The takeover tops Softbank Corp.'s takeover of Vodafone Group PLC's Japanese mobile-phone operations for $15.6 billion (earlier this year as the largest ever by a Japanese company, news reports say.
The move comes as Japan Tobacco, maker of Mild Seven brand Cigarettes and overseas distributor for U.S. brands Winston, Camel and Salem, tries to bolster earnings by expanding outside of Japan, which has seen declining smoking rates. Like many tobacco companies worldwide, JT has also been looking to diversify outside Cigarettes.
The combined company would have annual global output of 600 billion Cigarettes, JT said in a release.
"The integration of our business operations and our portfolios will position our international tobacco business for continued growth," JT President and Chief Executive Hiroshi Kimura said in the company statement.
Japan Tobacco shares rose 3.1 percent to close at 597,000 yen ($5,068) in Tokyo Friday.
Shares in Gallaher, the world's fifth largest tobacco company, slipped 0.5 percent Friday to 1,149.5 pence ($22.59).
The purchase would boost Japan Tobacco's share of the European tobacco market to 23 percent from 10 percent, according to the Nihon Keizai newspaper. JT's global market share would jump 3.1 percent to about 11 percent, it said.
It also highlights bolder strategies Japanese companies are taking as they seek ways to grow. Earlier this year, Nippon Sheet Glass Co. bought Pilkington PLC, a British rival that was twice its size, in a $3.8 billion deal.
After the announcement, Standard & Poor's Ratings Services placed JT's "AA-" long-term rating on cRedit watch with negative implications. It said that JT has good liquidity and no debt, but that its financial status will deteriorate as it pays for the takeover. The negative impact could last for one to two years, S&P said.
But looking long-term, the purchase should bolster Japan Tobacco's business.
"JT aims to boost its earnings base in overseas markets, which are expected to grow. In the Medium to long term, this acquisition should lead to a stronger business franchise, supported by an expanded brand portfolio and geographically diversified earnings sources," S&P said in a statement.
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