[Intl-tobacco] JT Mulls European Acquisitions

[Robert Weissman]

Japan Tobacco doesn't rule out European M&As - Reuters

August 26, 2005

By Miki Shimogori

TOKYO - Japan Tobacco Inc. (JT) (2914.T: Quote, Profile, Research) said on
Friday it would not rule out three European tobacco rivals -- Gallaher
(GLH.L: Quote, Profile, Research) and Imperial Tobacco (IMT.L: Quote,
Profile, Research) and French-Spanish firm Altadis (ALT.MC: Quote, Profile,
Research) -- as potential candidates for future acquisitions or alliances.

Ensuring further growth in its overseas tobacco business is a crucial task
for JT -- the world's third-biggest tobacco group and known for its Camel,
Winston, Salem and Mild Seven brands -- as it must weather relentless
shrinkage in the domestic tobacco market, where it has a 66 percent share.

In an interview with Reuters, JT president and CEO Katsuhiko Honda said the
global tobacco industry has almost completed 80-90 percent of its
realignment, leaving Europe as a remaining area for potential shake-ups.

Asked if the three European firms could be targets for JT's future mergers
and acquisitions, he said: "We would not rule them out. We could make
alliances or acquisitions involving them.

"But I must say the valuations of these firms at the moment are extremely
high ... and we need to consider various aspects in making any kind of
investment, such as whether this price trend will last long."

Honda, 63, said he wants to ensure sufficient synergies in making any
acquisitions, and Japan Tobacco would not blindly chase deals merely to
enlarge its business scale. He ruled out the possibility of JT, which has
some $7.9 billion (4.4 billion pounds) in liquid assets, making any hostile
takeover attempts.

"We are studying acquisition possibilities in various ways, but we don't
have any specific plans right now," he added.

Honda said he feels any major industry realignment in Europe will come later
rather than sooner.

"As you can see, each firm there is now enjoying a good level of earnings.
But if you ask whether they will be OK as they are now, it is also true that
each faces the task of making its business stronger."

Cash-rich JT raised its global profile after acquiring the non-U.S.
operations of R.J. Reynolds Tobacco Holdings (RAI.N: Quote, Profile,
Research) in 1999. JT holds a nearly eight percent share of the global
market excluding China, less than half that of sector leader Philip Morris
(MO.N: Quote, Profile, Research) of the United States.

JT has vowed to protect its home market share after ending in April a
three-decade pact with Philip Morris to produce and sell the American
giant's top-selling Marlboro brand in Japan.

Cutting costs is another way in which JT has adapted to ease the pain from
years of decline in Japan's nearly $40 billion tobacco market, ranked fourth
after China, the U.S. and Russia.

Honda said JT wants to ensure better margins at home by introducing
value-added products such as its "D-spec" cigarettes that mask unpleasant
odours from cigarettes, hoping to triple the size of such "premium" segment
cigarettes.

"While introducing attractive products, we would also like to mull a pricing
strategy, although not imminently," said Honda, who during the interview was
smoking a "Sakura" cigarette, a brand for which himself had acted as a
manager.

He said the strategy would include a potential price rise for some products
such as its mainstay "Mild Seven" brand cigarettes.

Armed with steady sales of high-margin cigarettes overseas, JT has predicted
its group net profit will nearly triple to 180 billion yen for the year to
next March. A Reuters Estimates poll of 10 analysts forecast a profit of
183.5 billion yen.

Shares in JT -- a typical defensive issue, seen as holding less risk than
the overall market -- have shot up 38 percent so far this calendar year,
against a 12 percent rise in the Tokyo market's food sector sub-index
(.IFOOD.T: Quote, Profile, Research). JT ended Friday up 1.26 percent at
1.61 million yen, against a 0.53 percent rise in the sector index.

DIVIDEND TARGET

To further cheer up investors, Honda said he wants to ensure a continuous
rise in dividends, though that did not necessarily mean its dividend payouts
would rise every year.

JT paid a per-share dividend of 13,000 yen including a 1,000 yen
commemorative dividend in the business year ended March 31, up from the
previous year's 10,000 yen. It plans to raise the payout to 14,000 yen in
the current year.

Its dividend yield still hovers at under 1 percent, less than the average
yield of about 1.2 percent among firms listed on the Tokyo bourse's first
section.

Honda also said splitting shares is a potential option that would help JT
increase the number of individual shareholders by making its shares easier
to buy.

But he said he was somewhat reluctant to make further share buybacks after
having completed 40 billion yen buyback scheme from November to March,
because doing so would reduce the number of floating shares in the company.
JT holds about 4 percent of its outstanding shares as treasury stock.

JT was privatised in 1985 but is still 50 percent owned by the state. In
June last year, the government cut its stake from 64.5 percent through a
$2.2 billion share offering.

Honda said that once JT's drug and food business -- two non-tobacco
segments -- are able to generate steady earnings, JT will look into ways to
improve its structure.

Moving into a holding company structure would be one possible option, he
said.

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Tobacco sector in focus on bid hopes - MarketWatch
WPP Group half-year net profit, revenue gains
August 26, 2005

By Kabir Chibber

LONDON (MarketWatch) - Tobacco companies were in focus Friday after Japan
Tobacco's president kept open the possibility of acquisitions or alliances
in Europe.

Gallaher Group (UK:GLH: news, chart, profile) (GLH: news, chart, profile)
slipped 0.2%, but Imperial Tobacco Group (UK:IMT: news, chart, profile) held
on to morning gains and was last up 0.3%.

Much larger rival, British American Tobacco (UK:BATS: news, chart, profile)
(BTI: news, chart, profile) , dropped 0.6%.

Clive Roberts, an analyst at Charles Stanley, called speculation that Japan
Tobacco would buy Gallaher or Imperial Tobacco an "old chestnut."

"These rumors have been round as long as I've been covering stocks," he
added.

Roberts said Gallaher is the smallest and "most accessible" of the three
U.K. tobacco companies. But he also said he couldn't see why a deal for
Gallaher would be more likely now. "There are an awful lot of companies in
Europe it could go for," Roberts said.

Overall, the FTSE 100 index was flat at 5,254 points, giving up gains as the
U.S. opened lower. German and French indexes also turned lower. See Europe
Markets.

Economy, WPP

The pound was up 0.4% at $1.8062. Economic growth in the U.K. in the second
quarter grew 0.5% from the previous quarter, revised up from the previous
estimate of 0.4%, the Office of National Statistics said.

The agency said the U.K. economy grew 1.8%, up from the previous estimate of
1.7%. Both revisions were in line with expectations.

Advertising group WPP Group (WPPGY: news, chart, profile) (UK:WPP: news,
chart, profile) shares slipped 0.6%, with some investors worried about
slowing revenue growth, as it said first-half net profit rose to 148.9
million pounds. Revenue rose to 2.46 billion pounds, from 2.03 billion
pounds. See full story.

Pest control-to-sanitation services company Rentokil (UK:RTO: news, chart,
profile) shares were down 2.2% to 158 pence as it said Raphoe Management
Ltd., a vehicle headed by businessman Gerry Robinson, which has expressed
interest in Rentokil, isn't ready to put forward a takeover proposal.

The company was also down downgraded by Credit Suisse First Boston to
neutral from outperform, citing disappointing first-half profit. The broker
also cut its price target to 170 pence and noted that the timetable for
tangible improvements has been pushed back until the end of 2006.

British Airways (BAB: news, chart, profile) (UK:BAY: news, chart, profile)
added 0.8% in volatile trade as its sole in-flight food supplier Gate
Gourmet reached a nonbinding agreement with its union on a voluntary
redundancy program that could lead to the loss of up to 675 jobs, the
Financial Times reported. The caterer had fired 667 people, triggering a
strike that cancelled flights and paralyzed the airline at its global hub.

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973%2DDD73FD425E64%7D&;siteid=mktw