Imperial fuels Altadis bid speculation

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Imperial Tobacco announced a review of its share buy-back programme at its annual general meeting yesterday, fuelling speculation it was about to swoop on its Franco-Spanish rival Altadis.

The maker of Lambert & Butler and Richmond cigarettes halted its buy-back programme in December and analysts suggested it was husbanding resources before a potential bid.

Its chief executive Gareth Davis told shareholders yesterday that the company had made "excellent progress" with its key brands in the first quarter of 2007. "We continue to review our buy-back strategy, aiming to keep our capital structure efficient while maintaining balance sheet flexibility," he said.

Analysts said the review could mean the company is preparing a bid. Last year, Imperial, the world's fourth largest cigarette company, raised its rolling programme to around £600m and since then has bought back shares to the value of £515m.

After Japan Tobacco's £7.5bn agreed move on Gallaher at the end of last year, Altadis, the maker of the Gauloises and Fortuna brands, has been widely tipped as the next takeover target in a sector ripe for consolidation.

Rojerio Fujimori, tobacco analyst at Credit Suisse, said that given the recent strong performance of Altadis's shares, he did not believe the kind of bid price premium needed to agree a friendly deal "would produce attractive financial returns to any strategic acquirer". Imperial was unlikely to pay over the odds for Altadis, he added.

Many analysts believe that if Imperial fails in an attempt to buy, it would be targeted itself by the world's two biggest companies, Altria Group and British American Tobacco. Mr Fujimori said: "While it is impossible to ascertain the timing of future deals, we think Imperial looks well positioned to benefit from further sector consolidation... in Europe."

Imperial said it had continued to perform well in the UK during the quarter, although it estimates the market will decline by 4 per cent this year after the introduction of the smoking ban in England and Wales.

Growth is still being fuelled by the company's performance in emerging markets, particularly in Eastern Europe, Asia and Africa.