[Intl-tobacco] Imperial May Come to US

[robert weissman]

Imperial Tobacco May Enter U.S. as Legal Risks Drop, Davis Says -
Bloomberg News

August 1, 2006

Aug. 1 (Bloomberg) -- Imperial Tobacco Group Plc, the maker of West and
Davidoff
cigarettes, may sell tobacco products in the U.S. for the first time as
legal risks
there decline and U.K. consumption slows, Chief Executive Officer Gareth
Davis said.


The British company is considering ways of expanding in the country,
Davis, 56, said
today in an interview at his office in Bristol, England, without
elaborating.
Imperial has ruled out acquisitions in the U.S. to avoid involvement in
lawsuits, he
said.

``It is a highly attractive market with highly attractive margins,'
Davis said. The
potential problems there are ``significantly less' than three or four
years ago, he
said.

U.S. courts have reached decisions in two of the three biggest lawsuits
against the
American tobacco industry. Altria Group Inc., the maker of Marlboro
cigarettes, and
Reynolds American Inc. would face the first new major competitor in years if
Imperial does expand in the country, where it currently only sells Rizla
rolling
papers.

Consumers in the U.S. smoke 7 percent of the world's cigarettes yet
account for 30
percent of the tobacco industry's profit, Davis said. Imperial is
seeking new
markets after forecasting that the number of duty-paid cigarettes sold
in the U.K.,
its biggest market, will probably fall 3 percent to 4 percent this
fiscal year.
Sales volumes are declining as taxes rise and the government prepares a
national ban
on smoking in public places next year.

Imperial Tobacco shares fell 12 pence to 1,738 pence at 4:01 p.m. in
London. The
stock has climbed 19 percent in the past year, while the Bloomberg
Europe Tobacco
Index has gained 22 percent.

`Settled Landscape'

Shares of cigarette makers have risen to records in 2006 as investors
speculate that
the end of the biggest legal issues against the U.S. tobacco industry
may lead
Altria's Philip Morris units to start making acquisitions.

Philip Morris USA won the reversal of a $10.1 billion damage award in
December when
the Illinois Supreme Court ruled the company didn't need to pay smokers
of ``light'
cigarettes who accused it of misleading them about health risks. Last
month, a
Florida court upheld a decision to throw out a $145 billion payout by
cigarette
makers, and in a pending case, the U.S. Department of Justice is seeking
$14 billion
of damages, down from $280 billion previously.

``It all points to a more settled landscape in the United States,' Davis
said,
adding he would consider expanding any of Imperial Tobacco's existing
businesses
there. ``I would see, going forward, more participants in the U.S. market.'

Imperial was formed in 1902 when a group of U.K. tobacco companies
banded together
to fight off American Tobacco's entry into the U.K. market. Imperial
Tobacco and
American Tobacco eventually agreed to stay out of each others' markets
to avoid a
price war, according to Hoover's Handbook.

Acquisition Plans

Davis has enlarged Imperial into the world's fourth-largest publicly-traded
cigarette maker by volume from No. 22 when he became CEO in 1996. His
biggest
acquisition was the 5.2 billion- euro ($6.6 billion) purchase of
Germany's Reemtsma
in 2002.

Imperial Tobacco's profit rose 28 percent to a record 570 million pounds
in the year
ended Sept. 30, according to U.K. accounting standards. The company has
been gaining
market share in Africa, Asia and the Middle East to offset declining
consumption in
its two biggest markets, the U.K. and Germany, where it gets about half its
operating profit.

Davis said Imperial may make an acquisition bigger than Reemtsma before
he retires
in four years, as he aims to expand the company into new markets.
Imperial sells
cigarettes, cigars, roll-your-own tobacco and snuff in more than 130
countries.
``I'd love to see us do another significant acquisition before I go,' he
said. ``We
have an appetite for most tobacco products.'

Altadis

Davis didn't exclude Imperial eventually surpassing Japan Tobacco Inc.
as the
world's third-largest traded tobacco company.
To become No. 3, Imperial would need to double the number of products it
sells each
year. The company, whose brands include Lambert & Butler, sells 220 billion
cigarettes and roll-your-own equivalents a year. Altria, the biggest,
makes 990
billion cigarettes, while British American Tobacco Plc makes 678 billion
as European
industry leader. Japan Tobacco Inc. makes 431 billion.

``It would take a very major acquisition and very significant organic
growth for us
to overtake them in volume terms, but you know, we'll go for it,' Davis
said.

Newspapers including Expansion and the Daily Mail have reported for
years that
Imperial may buy its smaller rival, Spain's Altadis SA. The company is
currently
completing a review of its strategy.

``We will just have to see what comes out of that,' Davis said,
declining further
comment.

Michael Smith, an analyst at JPMorgan Chase & Co., has said a takeover
of Altadis,
the maker of Gauloises cigarettes, is more likely now than at any time
in the past.
Madrid-based Altadis has a stock market value of about 10 billion euros,
twice as
much as Imperial Tobacco paid for Reemtsma.

The U.K. company will consider ``significant' takeovers as well as smaller
``bolt-on' acquisitions, Davis said.
The governments of Turkey and Bulgaria are considering selling tobacco
assets, while
Taiwan and North African countries may consider doing so in coming
years, according
to the CEO.


To contact the reporter on this story:
Thomas Mulier in Madrid at  tmulier@bloomberg.net.

http://www.bloomberg.com/apps/news?pid=20601102&sid=aHioRJiQV_9Q&refer=uk