Eastern match for Gallaher

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The Independent Online

Cigarette maker Japan Tobacco (JT) is tipped to set its acquisition sights on Britain's Gallaher, the company that produces Silk Cut and Benson & Hedges.

Cigarette maker Japan Tobacco (JT) is tipped to set its acquisition sights on Britain's Gallaher, the company that produces Silk Cut and Benson & Hedges.

JT enjoys an overwhelming 75 per cent stranglehold on its domestic market, but has so far found it difficult to break into a global market which consumes nearly six thousand billion cigarettes a year.

Although the company can see excellent prospects in Asia, it is particularly keen to tap the western European market which continues to be extremely strong. Of the possible targets, which include groups in Germany and France, Gallaher is viewed by City analysts as by far the most likely.

"It is currently undervalued," says one analyst, "and JT can easily afford it. It also makes a lot of sense for them, as it would give them two of the premier UK brands, and several continental market-leaders."

Over the past five years JT has built an impressive war-chest, and has hinted that it is preparing to use it on a series of lightning acquisitions. Last year its cash surplus reached nearly 400 billion yen (£2.5bn), and it used some of that to buy the non-US tobacco business of the former RJR Nabisco. Gallaher is currently valued at £2.5bn.

Through the Nabisco deal, JT became the seller of three of the world's top five cigarette bands. As well as putting JT in the world's top three tobacco companies, the deal was also praised for keeping JT well insulated from the litigation-riddled US, exposure to which has crushed the share prices of many cigarette companies.

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