Imperial Tobacco in €540m deal for Davidoff trademark

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Imperial Tobacco hinted at a new international expansion drive yesterday as it bought the Davidoff cigarette brand name from Germany's Tchibo Holding for €540m (£365m) in cash.

The world's fourth-largest tobacco group has been making Davidoff cigarettes - its key premium brand - under licence since its acquisition of Germany's Reemtsma in 2002. It gives the company full autonomy on marketing the brand and allows it to further develop the premium end of its product portfolio, especially in Asia where it has been particularly successful.

Gareth Davis, the chief executive, said: "Davidoff is our key international strategic premium cigarette brand and an important growth driver for the business. We have achieved considerable success with Davidoff cigarettes, increasing global volumes in the last four years."

Explaining why the company had spent a hefty sum on a trademark for cigarettes it already produces, Mr Davis pointed to the global growth potential of the brand and the likelihood of "significant" increases in future royalty rates. The shares fell on the news and closed down 8p at 1,805p.

Davidoff is forecast to achieve sales volumes of 14 billion this year, up from 13 billion last year, representing 6.2 per cent of group volumes. At the time of the acquisition four years ago sales were 12 billion.

Analysts at Lehman Brothers said: "We see this as a move ahead of more aggressive expansion by Imperial Tobacco into new markets including possibly the US and other areas such as South America. The company has alluded to international expansion aspirations recently."

Imperial has sought to diversify from its core markets of Britain and Germany, where it has suffered tough trading as higher taxes on tobacco have taken their toll. A further threat comes from smoking bans in Ireland, Scotland and, from next year, England. By contrast, it has seen good volume growth in Asia and eastern Europe.

The maker of Embassy and Lambert & Butler cigarettes has made no secret of its desire to make a major acquisition and has recently been linked with Altadis, the Franco-Spanish group.

The group said the trademark purchase would not affect its share buy-back programme. Oettinger Davidoff Group owns the worldwide Davidoff trademark for tobacco products other than cigarettes.