[Intl-tobacco] Russia: Tobacco Giants in $181M Deal

[robert weissman]

Tobacco Giants in $181M Deal
The Moscow Times
August 10, 2004

By Thomas Mulier
Bloomberg

MADRID -- Altadis, Europe's second-largest tobacco company, offered to buy
Balkanskaya Zvezda, the maker of Russia's second-best-selling cigarette
brand, for 182 million euros ($224 million) to expand in Eastern Europe.

Altadis agreed to buy 81 percent of the closely held company, known as
Balkan Star, for 147 million euros ($181 million) and is extending the offer
to purchase the rest of the shares from former and current employees on the
same terms, a spokesman said.

"The price is reasonable," said Javier Mata, an analyst at Banesto Bolsa in
Madrid with a "neutral" rating on the stock. "What they're buying is not
just the company, it's market share."

European tobacco companies are expanding through acquisitions as consumption
declines in Western Europe. Smokers in France, where Altadis makes about a
sixth of its sales, bought 22 percent fewer Virginia-style cigarettes in the
first quarter after the government raised taxes by 40 percent. Russia is the
world's fourth-largest tobacco market, with about 300 billion cigarettes
consumed per year.

Altadis, whose brands include Fortuna and Gauloises, said it may increase
the total price of the transaction to 202 million euros if certain financial
targets are met before the purchase's conclusion, which is expected in the
fourth quarter.

Altadis said it expects the purchase to be "neutral" to profit in the first
year after conclusion, and it aims to double the Russian company's earnings
before interest, tax, depreciation and amortization in 2008. Balkan Star
earned 18.2 million euros on that basis in 2003 on sales of 107 million
euros.

Balkan Star sold 31 billion cigarettes in 2003 and has capacity to make as
many as 40 billion at a factory in Yaroslavl. The company's main brand is
second to L&M, made by Altria Group's Philip Morris.