NEW YORK -- Is multi-directional consolidation coming in the tobacco industry? Stock analysts at Citigroup Research seem to think so.
In a report issued by the company, analysts Adam Spielman and Bonnie Herzog speculate on the idea that either cigar-makers Altadis; Imperial Tobacco, the fourth-largest international tobacco company; or Gallagher Group Plc (GLH), makers of cigarettes, cigars, pipes, hand-rolling tobacco and snus products, could be purchased in a variety of manners in the near future.
"We think [Altadis] [image-nocss] is more likely to get taken over," stated the report released yesterday. "We think it is most likely to be taken over because the deal would be smaller and much more straightforward than taking over Imperial. Even if Altadis is not bought, we think it is highly likely that Altadis will make accretive acquisitions from the disposals that would be required to resolve anti-trust issues of any other deals."
Those "accretive acquisitions" could include Altadis buying Gallaher's distribution business from cigarette-maker JT International, which could potentially take over Gallaher itself, according to the report.
If Gallaher is taken over, there are essentially two possible deals left, according to the report. Those are:"Someone takes over Altadis. The most probable candidate is Imperial, but BAT or (after say 24 months) JT/GLH are possibilities too."Imperial is bought and broken up. It would need to be broken up because no single player could keep all of it, for anti-trust reasons."The report defined those possibilities as:
If Philip Morris International (PMI) bought Imperial, it would most certainly have to sell Germany, Australia, some UK brands and possibly most of the rest of Continental Europe.If British American Tobacco (BAT) bought it, there would be forced sales in Australia, Ireland, and for some UK brands.If JT/GLH bought Imperial, the UK/Irish business would have to go.Altadis would be too small to buy Imperial on its own."So if Imperial is bought, however it occurs, large chunks will come loose, and it is likely Altadis would be in a strong position to buy some or all of them," the report added. "In fact, we think that if Imperial is going to be bought, the most probable route would be through a joint bid by Altadis and PMI."
The report concluded that "either acquisition (of Altadis or of Imperial) would have to be hostile, but the Imperial acquisition would be harder. If Altadis were to bid for Imperial, it would have to persuade PMI (or conceivably BAT) into a partnership for a bid. While this is perfectly possible, it would be harder to put together, and is subject to more regulatory uncertainty. It looks more likely that Altadis is bought than Imperial, because the deal would be simpler and smaller; however the fact that Imperial is also a possible target suggests to us that Imperial might have added urgency about making a bid. Therefore we have concluded the most likely deal is for Imperial to bid successfully for Altadis."
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