British American Tobacco PLC said Thursday it has bought Colombia’s second-largest cigarette company by sales and market share, Productora Tabacalera de Colombia SAS, or Protabaco, for $452 million(277 million pounds), filling a strategic gap in its operations in Latin America.
The London-based second biggest cigarette maker in the world said the deal will elevate it to second from third place in Colombia, Latin America’s fourth largest cigarette market with total industry sales of around 17 billion cigarettes in 2010.
Productora Tabacalera de Colombia, S.A.S.
“We’ve always made it clear if it was up for sale, we would take a look,” Kate Matrunola, a spokeswoman for London- based BAT, said by phone today. She declined to comment further.
The acquisition will enlarge BAT’s presence in the country, which is Latin America’s fourth-largest cigarette market and had total industry sales of around 17 billion cigarettes last year.
Buying Protabaco would strengthen BAT’s position in Colombia after Philip Morris International on Jan. 5 abandoned an agreement to buy the company for $452 million because of “burdensome” regulatory requirements. The New York-based maker of Marlboro cigarettes had announced the plan in July of 2009.
Protabaco sold 5.5 billion cigarettes in 2010, accounting for almost one third of the domestic market. Its biggest brand, Mustang, is the country’s second best selling cigarette with a market share of around 18 percent. BAT itself sold 708 billion cigarettes in 2010.
“This investment will strengthen and complement our position in an important market and fill a strategic gap in our Americas region,” said Mark Cobben, BAT’s Director for the Americas.
The company said it will fund the transaction with internal resources. The price tag represents a multiple of 11.3 times Protabaco’s $40 million domestic earnings before interest, taxes, depreciation, and amortization from last year on net domestic revenue of $110 million.
Privately owned Protabaco last year sold 5.5 billion cigarettes equating to almost one third of the domestic market. Its biggest brand, Mustang, is the country’s second-best-selling cigarette with a retail share of around 18%.
“It makes absolute sense that BAT will now aim to acquire Protabaco, given that we believe PMI ran into competition issues,” said Rey Wium, an analyst at Renaissance BJM in Johannesburg. “We always thought it would be a tough one to clear for PMI.”
PMI has about 51 percent of Colombia’s cigarette market, compared with 20 percent for BAT and 13 percent for Protabaco, Wium estimates.
Philip Morris bought Colombia’s biggest tobacco company – Compania Colombiana de Tabaco SA, in 2005.
Last month, BAT posted a 5% rise in first-quarter sales, boosted by pricing gains, but said volumes continued to soften and warned of challenging trading amid tough global economic conditions.
