PAI Partners may trump Imperial offer for Altadis

PAI Partners, the pan-European buyout house, has emerged as the latest private equity firm running the slide-rule over Altadis, the Franco-Spanish tobacco group being stalked by Imperial Tobacco.

Analysts said yesterday that private equity firms could be attracted by the prospect of breaking up Altadis, which has a cigar and logistics business alongside its tobacco unit.

The market is expecting Imperial, the maker of Lambert & Butler and Richmond cigarettes, to improve its offer of €45 a share later this week, after Altadis rejected an £8bn approach earlier this month. Analysts indicate that a €48 to €50 a share offer, which would value the company at nearer to £9bn, is likely to be accepted by the company.

But they are not ruling out a move from private equity, who are understood to be keen on getting their hands on Altadis's leading cigars business, which has 25 per cent of global market share, and its logistics division. CVC Capital and Cinven are understood to have registered an interest with the company last week.

If a private equity house were to buy Altadis, it is likely to auction the cigarettes division, which includes the Gauloises and Fortuna brands, to of one its rivals, including Imperial, BAT or Japan Tobacco. Citigroup indicates a sum-of-the-parts valuation would be about €50 a share.

One analyst said: "Private equity are interested because the company would be relatively easy to break up. What they could potentially do is leverage it, whack it full of debt and sell off the cigarettes business."

Altadis's cigar division accounts for 22 per cent of group sales and is its fastest growing division. Partly due to its joint venture with Cuba's Corporacion Habanos, it enjoys 70 per cent of share in the premium market. Its brands include Montecristo and Romeo y Julieta and it is thought that luxury goods companies such as LVMH and Richemont could be interested in acquiring such brands. Analysts point out that the potential lifting of the embargo on Cuba would open up the US market to Havana cigars. The brokers Cheuvreux value the cigar division alone at €4.5bn and believe a €50-a-share offer for the entire company would be conservative.

Altadis is also the only cigarette company to have a significant logistics business, which accounts for 30 per cent of the company. Its clients include Coca-Cola, Vodafone and Pfizer.

"Private equity are aware that this might be the last opportunity to acquire a tobacco business," one analyst said.

Imperial's chief executive Gareth Davis reiterated last week that his firm intended to buy the whole business and that he was keen to pursue further friendly dialogue.