[Intl-tobacco] Japan Tobacco may seek UK market boost with Gallaher bid

[robert weissman]

http://business.timesonline.co.uk/article/0,,9065-1303511,00.html

Times on Line (UK)
October 11, 2004

Japan Tobacco may seek UK market boost with Gallaher bid
By Peter Klinger
JAPAN TOBACCO (JT), the world=92s third-biggest cigarette company, has
refused to rule out a bid for Gallaher Group, owner of the Benson &
Hedges brand and a major player in the British tobacco market.

JT, whose brand portfolio includes Camel, Winston and Mild Seven
cigarettes, has a strong presence in continental Europe, but a
negligible market share in the UK.

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Gallaher shares have risen by 5 per cent over the past two and a half
weeks, in part on speculation that JT, which is half-owned by the
Japanese Government, was considering a bid.

Roy Tsuji, JT corporate communications general manager, would not rule
out a bid for Gallaher. He said: =93We would be happy to have a better
business (in the UK) in terms of profits. That=92s why we say that
generally speaking we are always looking at business opportunities to
grow our business. But we do not comment on any specific deals or any
rumours.=94

Gallaher also refused to comment on the speculation.

Although the UK cigarette market, the world=92s eighteenth biggest, is in
decline, it remains highly profitable and Gallaher, whose brands include
Silk Cut, has a 38.7 per cent share of the UK market, second only to
Imperial Tobacco.

Any bid for Gallaher, which is regarded as a perennial takeover target
for British American Tobacco (BAT), is unlikely to occur before the UK
Government makes clear its intention on smoking in public places. A
Department of Health White Paper, which is expected to address the
public smoking issue, is due out later this month.

If the Government decides to ban smoking in places such as pubs and
restaurants, the impact on the profits of Gallaher and Imperial could be
significant.

Gallaher is already reeling from a ban on smoking in bars in the Irish
Republic.

Analysts at Goldman Sachs, the Wall Street bank, said that a similar ban
in the UK could wipe up to 11 per cent off Gallaher=92s forecast earnings.

Gallaher=92s shares fell to 623=BDp last month, their lowest level since
February, on the back of the uncertainty surrounding Britain=92s smoking
laws and the company=92s subdued outlook on trading.

JT has been a key driver in the consolidation of the global tobacco
industry. Five years ago it paid $7.8 billion (=A34.4 billion) to acquire
Reynolds American=92s non-US tobacco business.

Altadis, the Franco-Spanish group formed from the merger of Seita and
Tabacalera four years ago, is viewed alongside Gallaher as the most
likely European takeover target.

JT controls 70 per cent of Japan=92s tobacco market, but is about to lose
domestic licensing rights to the top-selling Marlboro brand, accounting
for about 9 per cent of the market.