British American Tobacco Plc (BTI,BATS.L) said Wednesday that it acquired an 85% stake in Indonesia-based cigarette maker PT Bentoel Internasional Investama Tbk from Rajawali Group and other shareholders for US$494 million, or GBP 303 million. The company will announce a public tender offer for the remaining shares in due course, and assuming that all the shares are tendered, the overall deal would value 100% of Bentoel at about US$580 million, or GBP 356 million.
The company noted that the purchase price is equivalent to 873 Indonesian rupiah per share, a premium of 20% over Bentoel's closing price of 730 Indonesian rupiah per share on June 15, 2009. The public tender offer for the remaining shares is expected to be completed by the end of August 2009. Rajawali Group held a 56% shareholding in Bentoel.
According to British American Tobacco, Indonesia is the world's fifth largest tobacco market by volume, with sales of around 250 billion cigarettes a year, and the kretek segment, i.e. cigarettes made with a complex blend of tobacco, cloves and a flavoring 'sauce', accounts for some 93% of the market. Bentoel's key kretek brands include Star Mild, X Mild and Sejati. In 2008, Bentoel sold 17.7 billion cigarettes, representing about 7% of the market.
Meanwhile, British American Tobacco's existing business, PT BAT Indonesia Tbk, has an approximate 2% market share and competes only in the white cigarettes market.
Commenting on the transaction, John Daly, British American Tobacco's Asia-Pacific Director, said, "This transaction represents an excellent strategic opportunity to enter the very large and growing Indonesian kretek market and will provide a platform for future growth."
For the 12 months to March 31, 2009, Bentoel's earnings before interest, tax, depreciation and amortisation were US$53 million or GBP 32 million, and it had net debt of US$164 million or GBP 101 million as of March 31.
In the transaction, British American Tobacco has been advised by Deutsche Bank and UBS.
Last year, the company spent a total of about GBP 3 billion for two acquisitions. In last July, British American Tobacco bought Skandinavisk Tobakskompagni A/S, the cigarette arm of Denmark-based ST Group, and certain snus and roll-your-own tobacco interests. In June 2008, the company acquired the cigarette business assets of Tekel, the Turkish state-owned tobacco company.
In an interview with Financial Times in early May, British American Tobacco Chief Executive Officer Paul Adams had said that the company will continue to study acquisition opportunities, as the company recognizes that innovation on its own will not be enough to ensure its long-term growth.
However, Adams, a former marketing director at Pepsi-Cola, added then that the tobacco sector is unlikely to see any major deals like Imperial Tobacco Group Plc's (IMT.L, ITY, ITYBF.PK) 16.2 billion euros or $22 billion takeover of Altadis in 2008. Instead, companies will look to state privatisations and smaller 'bolt-on' deals in emerging markets such as North Africa or east Asia.
BTI closed Tuesday's regular trading session at $54.11, down $0.04, on a volume of 539 thousand shares. BATS.L is currently trading at 1,663 pence on the London Stock Exchange, up 7 pence or 0.42%, on a volume of 210 thousand shares.
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