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July/August, 2009

JTI gets active in global leaf acquisition
Tokyo - Japan Tobacco International (JTI) moved aggressively over the summer to take more control of its leaf acquisitions in international markets. On June 12, JTI announced it had bought the leaf tobacco business of the British dealer Tribac Leaf Limited, which has operated in Malawi, Zambia, China, and India, among others. Tribac’s organization will be integrated into the Global Leaf Procurement Group. Tribac has agreed to supply JTI with leaf from Zimbabwe.

At the same time, JTI said it had agreed with the US leaf dealers Hail & Cotton and J.E.B International to form a joint venture to procure and process US leaf for JTI. JTI Leaf Services will begin contracting with farmers for the 2010 crop, said Jay Edward Barker, a principal in J.E.B. International. By the end of 2010 crop marketing, JTI Leaf Services plans to take delivery of most of its leaf at its own receiving stations, said Barker. These stations will be established throughout the tobacco-growing area, he added, though no locations were named.

A new state-of-the-art processing plant will be built, probably in the Danville area or in an as-yet-unidentified location in eastern North Carolina, said Barker. A decision on the location was expected soon. The tobacco processing plant could mean an investment of over $30 mn.

JTI said in a statement that it hopes that these steps will stabilize its sourcing by involving the company more actively in the procurement of leaf. Also, it expects to further improve the quality of leaf sourced by JTI by working more directly with tobacco growers, and to enhance JTI’s talent pool and expertise in the area of leaf tobacco procurement.

Except for its Japanese leaf, JTI will procure all its other leaf through its Global Leaf Procurement Group in Geneva. That group will oversee JTI Leaf Services’ operations.

In July, JTI announced that it would acquire all outstanding shares of two Brazilian lead companies - Kannenberg & Cia. Ltda. and Kannenberg, Barker, Hail & Cotton Tabacos Ltda. (KBH&C) - with completion expected by October 2009. KBH&C processes and sells Brazilian tobaccos sourced principally from Kannenberg & Cia., a longtime producer of Brazilian flue-cured and burley. Note that Jay Barker and Hail & Cotton are involved in JTI’s US venture also.

There was no immediate word on how much in leaf orders will be transferred from commercial dealers to JTI procurement, but it will no doubt be a considerable amount. Universal Leaf and Alliance Once will likely be the big losers in this development. Sharp price increases of various crops in recent years have caused leaf tobacco costs to stay high and lead to undesirable supply volatility. “Enhanced stability and capability in procurement of African and US leaf tobaccos” is the goal of the Tribac and J.E.B./Hail & Cotton ventures, JTI said in a statement. “The acquisition of Kannenberg and KBH&C is intended to globalize the JT Group’s scope of procurement capability by adding Brazil, which is second only to China in tobacco leaf production worldwide.” - (Bickers)

MebTec to represent Heinrich Burghart in North America
Wedel - German laboratory device developer Heinrich Burghart GmbH has announced that MebTec Technology will be its agent for the North American market. According to a press release statement “both companies believe that this new partnership will support, prepare and equip our clients more effectively to respond to new challenges and opportunities in the tobacco industry.”

Burghart is located in Wedel, Germany and was founded in 1949 by Heinrich Burghart. The company develops and produces laboratory and testing devices for research and development, equipment for quality control, and manufacturing machinery. After Heinrich Burghart retired, his sons Heiner and Kurt Burghart took over the main business units: tobacco and medical. Burghart operates now on a global scale. Its product range can be viewed on the web site: www.burghart.net.

Vrijdag Takes Over Gestel Printing
Eindhoven - Vrijdag Premium Printing has taken over fellow historic Dutch printing company Gestel Printing Company BV. The transaction comprises all the immovable physical assets as well as all of Gestel’s machines at the Hurksestraat in Eindhoven. A limited segment of printing activities will be integrated into Vrijdag Premium Printing at the Limburglaan in Eindhoven. For more information, go to www.vrijdag.nl.

United Kingdom
BAT Pays £300mn for Kretek Tobacco Firm
London - British American Tobacco (BAT) is buying a controlling stake in Indonesia's fourth-biggest tobacco firm for $494 mn (£302 mn). After the acquisition of 85% of Bentoel Internasional Investama, it said, it would be seeking to take full control.

The deal gives BAT its first big stake in kretek, the tobacco cigarette mixed with cloves. Indonesia, where 93% of all cigarettes smoked are kretek - thanks, in part, to their favorable tax treatment compared with traditional "white stick" cigarettes - is seen as one of the world's most promising emerging markets for tobacco. About a third of the country's 248 mn people smoke, making it the world's fifth-biggest tobacco market by volume and among the ten most profitable.

The Indonesian market, which has grown by 13% in the past two years, is also seen as attractive because of its light regulation, compared with other Asian countries. BAT, whose top brands include Lucky Strike, Dunhill, and Pall Mall, expects to take full control by the end of August for a total of £356 mn. It is also expected to take on Bentoel's debts of around £101 mn. Bentoel sells the Star Mild brand of kretek and has a 7% share of the Indonesian tobacco market. BAT Indonesia, the British company's existing operation in the country, has a 2% share but dominates in white cigarettes, which, because of their higher price, are seen as upmarket.

Philip Morris International, the American maker of Marlboro, has been in Indonesia for several years and became its biggest cigarette manufacturer four years ago with the $5 bn takeover of Sampoerna. Gudang Garam and the Djarum Group, the country's second- and third-biggest tobacco firms, remain Indonesian-owned.

Jonathan Leinster, of UBS, said: "BAT was for many years the largest white cigarette producer in Indonesia, but its market share has fallen, primarily due to the decline of this segment and the growth of the kretek segment. The acquisition of Bentoel means it should be able to combine the operations. It increases its share to 9% of the market and gives it a presence in the dominant kretek segment. BAT is keen to be able to compete with Philip Morris International in this important market, although PMI has a leading 28% share."

Tobacco International - July/August, 2009

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