June 2 (Bloomberg) -- Altadis SA, Europe's third-largest cigarette maker, agreed to buy Regie des Tabacs Marocains, Morocco's state-owned tobacco company, for $1.51 billion, more than analysts expected, to gain the only tobacco maker in a country where consumption is rising.

Altadis, based in Madrid, bought 80 percent of Regie des Tabacs for cash, the Spanish company said in a faxed statement. Altadis will finance the purchase through a loan and by selling bonds. The price values all of Regie des Tabacs at $1.89 billion.

The Moroccan tobacco market is increasing in volume while shipments in European countries such as Britain wane, according to analysts. Regie des Tabacs, based in Casablanca, sells more than 14 billion ``Olympic'' and ``Casa Sports'' cigarettes a year in Morocco, which is the majority of the tobacco sold in the north African country.

``In the long term, the purchase should bring benefits to Altadis but the market consensus is that they paid too much,'' said Iker Berasategui, a money manager at Morgan Stanley in Madrid, which manages about $6 billion.

Stock in Altadis fell 5.3 percent, the biggest drop in 11 months, to 22.85 euros in Madrid. It rose to a record 24.85 euros last Monday. Investors today bought and sold 6.02 million shares, more than twice the six-month daily average. The company, which makes Gauloises and Fortuna cigarettes, has a stock market value of 6.98 billion euros ($8.2 billion).

Almost Double

The price paid is almost double some analysts' expectations. Regie des Tabacs is worth about $759 million to $1.05 billion, Ibersecurities said in a note to investors today. Standard & Poor's cut its outlook on Altadis' debt to negative from stable.

Morocco has about 30 million inhabitants, meaning Regie des Tabacs sells more than 500 cigarettes per resident a year. That compares with 2,275 cigarettes per person in Spain, according to Javier Mata, an analyst at Banesto Bolsa.

Western Europeans are smoking less, especially dark tobacco, the type Regie des Tabacs focuses on. Altadis's dark tobacco cigarette sales fell 11 percent in 2002. In Spain, one of three people who ever began smoking has quit, according to government statistics.

``Growth is in emerging markets,'' said Juan Jose Figares, chief analyst at Link Securities in Madrid. ``That's where the potential is.''

Sole Distributor

Regie des Tabacs had sales of $839 million in 2001 and employs more than 2,400 people, Banesto's Mata said. It had earnings before interest, tax, depreciation and amortization of 94 million euros in 2002. It is the only tobacco distributor in the country, and will remain the only importer until 2008.

The purchase should boost earnings per share before amortization from 2004, Altadis said. The purchase should be concluded by July.

Altadis, created by the 1999 merger of the former French and Spanish tobacco monopolies, was outbid by rivals in the sales of Austria Tabakwerke and Germany's Reemtsma Cigarettenfabriken in the past two years.

Altadis is currently also bidding to buy Ente Tabacchi Italiani SpA from the Italian government. Another country planning to sell a state-owned tobacco company is Turkey.

The Turkish government has said it plans to begin the sale process for Tekel, a tobacco and spirits maker, this month.

Debt Assumption

Altadis is loosening its target of keeping debt equal to or below 1.5 times earnings before interest, tax, depreciation and amortization. It will assume Regie des Tabacs' debt, which was 60 million euros at the end of 2002.

The company currently sees 2003 debt reaching 1.75 times Ebitda. The target could be loosened to three times Ebitda if Altadis makes acquisitions, the company said in February.

Moody's Investors Service rates its debt A3, while Standard & Poor's has an A rating on the long-term debt.

``Altadis has exhausted its flexibility within its current rating,'' Standard & Poor's said. ``The ratings could be lowered by one notch'' if Altadis doesn't improve its debt ratios by the end of 2004, it added.

The government said it will keep its 20 percent stake for at least two years and plans to sell shares in an initial public offering thereafter. Altadis has an option to buy the stake in 2008 if the government hasn't held the stock sale by then.

Altadis said it will maintain Regie des Tabacs' plan to shut a plant in Casablanca. It runs four factories total.

HSBC Holdings Plc and Attijari, a Moroccan bank, advised Altadis on the purchase.

Last Updated: June 2, 2003 13:04 EDT