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April, 2007

JT acquires Gallaher, Altadis rejects Imperial’s Offer

Japan Tobacco took over Britain's Gallaher Group for US$15 billion Wednesday, April 18, both sides said, in the biggest Japanese overseas acquisition ever.

"I am pleased to welcome Gallaher and its employees into the JT Group," said Chief Executive Hiroshi Kimura. "This acquisition is a significant milestone in the development of JT's international tobacco business."

The move will deliver economies of scale, strengthen the company's market position and growth opportunities, he said.

It will also help Japan Tobacco, which makes Mild Seven cigarettes, obtain technology and balance its international operations by adding to its turf Gallaher's markets, including Great Britain, Austria and Sweden, according to JT.

Meanwhile, the number of mergers and acquisitions in Japan has risen in recent years as the nation frees up its regulations to keep up with global competition.

The takeover of Gallaher, the maker of Silk Cut and Benson & Hedges cigarettes, also takes Japan Tobacco into a Western European market, where it now has little presence, creating a tobacco empire with annual global output of 600 billion cigarettes.

In 2005, JT was No. 3 in global market share, with 7 percent, behind Altria of the U.S. with 18 percent, and British American Tobacco with 12 percent.

With the latest purchase, it can hope to add Gallaher's 3 percent market share, but will remain No. 3, JT said.

The JT deal was approved by Gallaher shareholders March 9, and was granted final court approval Tuesday, April 17. It has also won regulatory approval in the European Union and other countries, according to JT.

A plan for integrating the operations is being set up, to be completed in August. JT's head of international operations, Pierre de LaBouchere will head the new executive committee to integrate Gallaher into JT, the company said. The committee also includes two former Gallaher executives, Stefan Fitz and Eddy Pirard.

Gallaher, which employs more than 11,000 people worldwide, dates back to 1857, when Tom Gallaher started a business making Irish roll tobacco in Londonderry, Northern Ireland.

In other news, Tobacco company Altadis SA said it rejected a sweetened takeover offer from the United Kingdom’s Imperial Tobacco Group PLC that values the Franco-Spanish company at €12.03 billion ($16.07 billion).

Altadis, which makes Gauloises, Gitanes and Ducados cigarettes, said its board believes the offer of €47 a share—up 4.4% from Imperial Tobacco’s initial approach—doesn’t “reflect the strategic value of the company.”

Imperial Tobacco, the maker of Regal, Lambert & Butler, Davidoff cigarettes and Golden Virginia rolling tobacco, confirmed it made a revised proposal and said it considered it “full and fair.”

Imperial Tobacco said it continues to believe a combination with Altadis is strategically compelling and in the interests of both companies’ shareholders. The company doesn’t plan to raise its offer, an Imperial Tobacco spokesman said. “We made a proposal to Altadis at a price of €47 per share,” he said, adding, “We can’t see anything that would lead us to increase that proposal.”

- Emerson Leonard

Tobacco International - April, 2007

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