Imperial is buying the tobacco business of Douwe Egberts, the Dutch coffee group, from Sara Lee, the American food goliath. The deal gives Imperial a dominant position in the roll-your-own market. Not only will it supply almost one-third of all hand-rolled tobacco around the world, the group also recently bought Rizla, which accounts for two-thirds of all cigarette paper sales.
Imperial's acquisition also makes it one of the world's largest suppliers of pipe tobacco. Douwe Egberts' leading brand is Amphora which will complement Imperial's current portfolio which includes St Bruno.
Sales of hand-rolling tobacco have been growing in the past few years despite a fall in the overall European cigarette market. The hike in tobacco excise duties has prompted smokers to choose cheaper alternatives. Imperial has been keen to expand abroad as the UK market has been hit hard by "bootlegging" from Continental Europe.
Gareth Davies, Imperial's chief executive, said: "This makes us the world's largest producer of roll-your-own tobacco and gives us extremely powerful brands to expand internationally. It is a great strategic fit for us."
The deal could raise competition concerns in several European countries such as the UK, Ireland and Spain. However, Imperial said yesterday that it was confident it could overcome any competition concerns and analysts pointed out the acquisition was a good geographical fit.
Imperial is already market leader in the UK, with almost 60 per cent of the hand-rolling tobacco market, while Douwe Egberts is market leader in Continental Europe, particularly in the Netherlands, Germany and France. It employs 870 people.
Douwe Egberts was founded in 1753 - confusingly - by Egbert Douwes. The tobacco and coffee business was acquired by Sara Lee in the 1970s and the Americans subsequently bought the Van Nelle brand which also goes back to the 18th-century. But Sara Lee has been keen to sell the tobacco operation which is did not see as a core business.
Imperial Tobacco also has a long history in the cigarette industry.
The group, originally famous for its Woodbines and Players brands, now produces Embassy, Regal and Lambert & Butler. The acquisition fulfils Imperial's target of having 30 per cent of its business overseas, compared to a fifth currently.
Imperial is not buying Douwe Egberts' US tobacco business as it has targeted other international markets for expansion.
Imperial said it could see substantial synergies from the deal which would enhance the group's earnings after it is completed this July.
Shares in Imperial jumped 31p to 458p yesterday as the City welcomed the deal.
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