Imperial rolls out $4.6B deal

March 7, 2002 Posted: 12:00 PM EST

LONDON (CNN) - Britain's Imperial Tobacco has agreed to buy 90 percent of Reemtsma, the world's fourth biggest tobacco company, for 5.2 billion euros ($4.6 billion).

Imperial, the maker of Embassy and Lambert cigerette brands, beat Franco-German rival Altadis, Britain's Gallaher and Japan Tobacco to capture the last major prize in the European tobacco industry, which has no exposure to damaging U.S. litigation.

"The tobacco industry is facing declining markets in major western counties," Hilary Cooke, analyst at Barclays, told CNN.

"The cost saving from the merger of the number 4 and 5 make it a much stronger force to sell its brands in more countries. This will not be the last merger in the industry."

The deal combines the maker of John Player and Van Nelle Dutch hand-rolled tobacco with Reemtsma, which sells Davidoff, West and R1 brands, to create the world's fourth biggest tobacco company.

"Reemtsma is an attractive business with a strong portfolio of brands and market position," Imperial Chief Executive Gareth Davis said on Thursday.

Imperial will buy Reemtsma from Tchibo Holdings, which owns 75 percent of the privately owned German tobacco company. The Reetsma family owns the rest. Imperial also has an option to by the remaining 9.99 percent stake in Reemtsma, taking the value of the deal to 5.8 billion euros.

The acquisition will be financed by the sale of 1.64 billion euros of new stock, which existing investors can buy on 2-for-5 basis, and debt, said Imperial.

Imperial's move is a direct challenge to the three biggest tobacco groups, Philips Morris, British American Tobacco and Japan Tobacco. It also puts pressure on the losers in the auction to buy Reemtsa to find alternative partners in a consolidating industry.

Tchibo is expected to use the proceeds from the sale to increase its stake in Beiersdorf, the maker of Nivea cream and Elastoplast, from insurer Allianz, which owns 43.6 percent of the company.

Imperial said the integration of Reemtsa is expected to generate cost savings of at least 279 million euros in fiscal year 2004 and boost earnings per share, before costs, in the first full year of ownership.

Imperial's stock rose 4.2 percent to 948 pence in early London trading on Thursday.

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