Gallaher tipped to soar after takeover approach

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Gallaher Group, the makers of Silk Cut and Benson & Hedges cigarettes, last night announced it had received a takeover approach that is expected to send shares soaring when the markets open today.

Rumours have been swirling the markets all week that Japan Tobacco was the most likely bidder to take over Britain's third largest tobacco company in what may lead to the biggest ever European tobacco acquisition. Gallaher was valued at £6.4bn at yesterday's closing price of 979p.

Analysts said, however, the Spanish cigar maker Altadis and British American Tobacco, which has 11 per cent of the global tobacco market and sells Royals King Size Red in the UK, would also be interested in making a move on the firm.

Japan Tobacco, the world's third largest tobacco group, has made no secret of its ambition to gain market share in Europe. The company, which is still 50 per cent owned by the Japanese government, is known for its Camel, Winston, Salem and Mild Seven brands. Last year, it said its international cigarette sales overtook domestic sales for the first time.

Gallaher, which has roots going back to 1857, owns the rights to Benson & Hedges in the European Union and earns 70 per cent of its profits from the shrinking cigarette markets of Britain, Ireland, Austria and Sweden.

But it is its expansion into the emerging markets of Russia - where it owns Liggett-Ducat and makes Golden Deer cigarettes - Ukraine and Kazakhstan, where earnings have risen sharply, that analysts have said makes it appealing for a takeover bid, as Western markets falter.

In a statement after the UK stock market closed, Gallaher said: "The company confirms that it has recently received an approach which may or may not lead to an offer. The approach is preliminary and there can be no assurance that any offer will be made."

In September, the firm reported a 4 per cent rise in first-half profits and forecast an improving second half.

Gallaher's shares, which closed at an all-time high on Tuesday, fell 7.5p yesterday.