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Japan Tobacco Agrees to Pay $450 Million for Sudan’s Haggar; Shares Climb

Japan Tobacco Inc. (2914) 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.

Africa Foothold

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.

Lower Multiple

Japan Tobacco is paying a lower multiple for Haggar than was paid in similar deals, according to data compiled by Bloomberg. The median price-to-Ebitda ratio in 10 takeovers or stake purchases in tobacco companies over the past five years was 13.5, the data show.

The ratio of 9.9 times Ebitda that Japan Tobacco said it’s paying for Haggar is lower than the multiple of 13.7 it paid for Gallaher Group Plc in 2007, according to data compiled by Bloomberg. The Japanese cigarette maker paid 7.5 billion pounds for LD maker Gallaher, excluding debt, the data show.

It bought RJR Nabisco Inc.’s international businesses, including the Winston and Camel brands, in 1999 for $8 billion, according to data compiled by Bloomberg.

Japan Tobacco is buying the Sudan cigarette maker from its parent, Haggar Holding Company Ltd., according to the statement.

Net income for Japan Tobacco may total 161 billion yen ($2.1 billion) in the 12 months ending March 31, compared with 145 billion yen a year earlier, it said in a separate statement.

Rebel Attacks

Fiscal first-quarter profit rose 2.4 percent to 22.7 billion yen, with operating income falling 9.5 percent to 71.9 billion yen, the company said.

Oil-rich South Sudan, which became the world’s 193rd nation on July 9, has an adult illiteracy rate of 85 percent, and half of its 8 million people live on less than $1 a day, according to the United Nations.

This year has been South Sudan’s most violent since civil war ended in 2005, with 2,368 civilians dying in rebel attacks and ethnic violence, including cattle raids, compared with 940 last year, according to the UN. As many as nine militia groups operate mainly along the border with the north, close to oil fields.

South Sudan controls about 75 percent of Sudan’s daily production of 490,000 barrels of oil.

The UN Security Council on July 8 adopted a resolution for a 12-month peacekeeping mission, authorizing the deployment of 7,000 soldiers and 900 police to South Sudan.

To contact the reporters on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net; Go Onomitsu in Tokyo at gonomitsu@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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