LONDON — Imperial Tobacco Group PLC said Thursday it has agreed to buy Commonwealth Brands, the maker of the discount Cigarettes USA Gold and Sonoma, from Kentucky-based Houchens Industries Inc. for $1.9-billion (U.S.), giving the British company a foothold in the U.S market.
The Bowling Green, Ky.-based company behind Commonwealth Brands is the fourth-largest cigarette producer in the United States, with annual sales of 14 billion Cigarettes. Commonwealth Brands, the trading name of CBHC Inc., has an estimated 3.7 per cent of the $376-billion U.S. market.
Privately owned Houchens acquiRed CBHC Inc. in 2001. Houchens' other businesses include Food Giant, IGA, Piggly Wiggly, and Mad Butcher food stores.
Imperial Chief Executive Gareth Davis said that the acquisition will increase earnings this year for the Bristol, England-based company. The deal is due to be completed by April.
Davis said the U.S. tobacco market accounts for as much as 30 per cent of the industry's profit worldwide and that Imperial expects the U.S. to become its third-largest market after the Britain and Germany.
Several tobacco companies have been looking to expand beyond Western Europe because of higher taxes and smoking bans already imposed or planned in several countries including Ireland, Britain and France. But they have avoided the United States in recent years following a number of multimillion dollar lawsuits against the industry.
Imperial pointed out that Commonwealth's brands, created in the 1990s, have never lost a smoking-related lawsuit and have never been named in a class-action lawsuit. It added the risk from litigation in the United States remained low.
Andrew Darke, an analyst at Evolution Securities in London, said that the purchase was an “unexpected fast-track entry” to the United States, where the opportunities are considerable.
Morgan Stanley analysts said the deal was a “first-class transaction that made strategic sense.”
Imperial Tobacco shares were down 1.9 per cent at 2,188 pence, $43.12 (U.S.), on a broadly lower London Stock Exchange.
Imperial already sells Rizla and Joker cigarette papers and tubes in the U.S. through its Robert Burton unit, but said entering the country alone would have proved too expensive.
Including some tax benefits, Imperial said the net cost of the acquisition was $1.5-billion.
It added that it would suspend a share buyback plan temporarily because of the deal — it last month said it had spent 515-million pounds, $1-billion (U.S.), in the past year buying back its stock.