Japan Tobacco Inc (JT) is in advanced talks to buy Reynolds American Inc’s Sante Fe Natural Tobacco unit for about $5 billion, and a deal is likely to be finalised this week, the Nikkei business daily yesterday reported without citing its source. But the purchase comes at a hefty price of almost 300 times the pretax profit of the Natural American Spirit brand in non-U.S. markets in 2014.
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Besides helping JT increase sales in domestic and overseas markets, the acquisition is in line with its recent initiative to focus on cigarette operations, as reflected by its exit from the soft-drink business in Japan this year.
The company said Japan accounts for the majority of Natural American Spirit’s sales volume outside the United States, with smokers mainly in their 20s and 30s.
Japan Tobacco said that 2014 sales of the brand outside the USA were ¥17.6 billion.
Today, Japan Tobacco sells more than 90 brands in 120 countries.
Reynolds shares rose 1.5 percent to $44.08 at 10:16 a.m.in New York.
Santa Fe Natural Tobacco Company launched the Natural American Spirit brand in 1982 and has marketed its products as without additives “with a marketing theme that is environmentally conscious and socially progressive”, Japan Tobacco said. The companies expect to get approvals by early 2016 and to to close the deal after that.
Overall, the sell side now maintains a rather bullish sentiment on Reynolds American shares. The Japanese company didn’t name its advisers.
Japan Tobacco was formally a state-owned cigarette monopoly before privatization.
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JT eventually wants to become the world’s largest cigarette manufacturer with brands such as Winston, Camel and Mevius, overtaking leader Philip Morris global and second-ranked British American Tobacco.
