Japan Tobacco Inc. agreed to pay $450 million for a cigarette maker operating in Sudan and oil- rich South Sudan, which gained independence this month after a rebellion that lasted almost 50 years.
Haggar Cigarette & Tobacco Factory Ltd. controls 80 percent of the market in Sudan and is “well established” in the Republic of South Sudan, the Japanese company said. The deal values the maker of Bringi cigarettes at 9.9 times last year’s underlying earnings before interest, tax, depreciation and amortization, Japan Tobacco said in a statement yesterday.
Japan Tobacco, the world’s third-largest publicly traded cigarette maker, plans to boost overseas profit by at least 10 percent as an aging population and a higher cigarette tax weaken demand at home. Net income may expand 11 percent to 161 billion yen ($2.1 billion) this fiscal year on increased prices in Russia and other markets abroad, the Tokyo-based maker of Mild Seven, Camel and LD cigarettes said yesterday.
“This acquisition is positive because it shows the company is eager to grow overseas,” said Mikihiko Yamato, a Tokyo-based analyst at Japan Invest KK. “The company prefers making acquisitions in Asia, but it is difficult to find candidates in the region.”
Japan Tobacco gained 3.7 percent in Tokyo trading to close at 350,000 yen, the highest level since Feb. 17. The stock has gained 16 percent this year, compared with a 6.4 percent drop in the broader Topix index.
The purchase of Haggar, which sold 4.5 billion cigarettes in Sudan last year, will be financed with existing funds and loans, Japan Tobacco said, without providing more details.
“Africa is a very energetic and growing market,” Akira Saeki, an executive vice president for Japan Tobacco, said in Tokyo yesterday. “Gaining a foothold there is a very significant step.”
Japan Tobacco’s cigarettes are sold in more than 20 African countries including South Africa, Algeria, Nigeria and Morocco, said Hideyuki Yamamoto, a company spokesman. The company has a 97 percent market share in Tanzania, he said.
Its two cigarette factories in the continent are in South Africa and Tanzania, and it has a tobacco leaf processing facility in Malawi, Yamamoto said by e-mail.
Haggar has two cigarette factories, according to its website. Japan Tobacco “will be assessing the attractiveness of exporting from Sudan,” Yamamoto said.