Daily Management Review

Japan Tobacco Buys Off Brand Rights from Reynolds American for $5 billion


09/29/2015




Japan Tobacco Buys Off Brand Rights from Reynolds American for $5 billion
The Reynolds American Inc's Natural American Spirit tobacco business outside the United States would be bought over by the Japan Tobacco Inc which would pay 600 billion yen ($5 billion) in cash to the American company.
 
The two companies announced this in two separate statements on Tuesday.
 
It is expected that the deal would be closed by early 2016 pending regulatory approval.
 
The Japanese company would acquire the related trademarks and subsidiaries of the Reynolds American Inc's Natural American Spirit primarily in Japan and Europe, where operations will continue unchanged, Japan Tobacco said.
 
Since its privatization in 1994, the former state monopoly, still 33.4 percent owned by the Japanese government, has been expanding its business all around the world.
 
In 1999 the company spent around $7.8 billion to buy off the non-U.S. tobacco business of RJR Nabisco Inc and in 2007 the company bought the British peer Gallaher Plc for about $18.8 billion.
 
This latest deal will help the Japanese to become the world's biggest cigarette maker following pursuits by Philip Morris International Inc and British American Tobacco Plc.
 
With smokers mainly in their 20s and 30s, Japan accounts for the majority of Natural American Spirit's sales volume outside the United States, said the company. President and Chief Executive Officer Mitsuomi Koizumi of the company said that buying the premium brand would extend Japan Tobacco's product line-up.
 
“Natural American Spirit, which has a strong and international presence in a premium priced category, will allow the JT Group to further extend its brand portfolio,” Koizumi added.
“This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our group’s business foundation,” he said.
 
Natural American Spirit would benefit from a sale to a global company such as Japan Tobacco, rather than Reynolds American investing to support the brand internationally, said Susan M. Cameron, the President and the Chief Executive of Reynolds American.
 
Following this deal, all international rights to Reynolds American cigarette trademarks will be owned by international tobacco companies and this would help the company to focus primarily on the business in the United States, said Cameron.  Japan Tobacco also owns the abroad rights of the company’s brands Camel and Winston.
 
JP Morgan Securities and Lazard have been hired by Reynolds American as financial advisers Jones Day as legal advisor.
 
This deal was preceded by the completion of a $25 billion acquisition of the smaller tobacco rival Lorillard this year by the Winston-Salem, N.C., based Reynolds American. The deal was agreed to last year, including selling some products to Imperial Tobacco Group of Britain to gain regulatory approval.
 
 “We believe this sale once again demonstrates our commitment to creating value for our shareholders,” Cameron said in the statement. 

Marketed as a premium, additive-free tobacco product, Natural American Spirit’s largest markets internationally are Germany, Japan and Switzerland. More than 280 people are associated with the brand overseas, Reynolds said.
 
Japan tobacco on the other hand claimed that it had a strong brand growth internationally in Britain, Germany, Japan, Italy, Spain and Switzerland.

(Source:www.reuters.com )






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