Japan Tobacco said this morning it has agreed to buy British cigarette maker Gallaher Group for £7.5 billion in cash.
Analysts said the takeover, the biggest-ever foreign acquisition by a Japanese company, could help Japan Tobacco offset declining cigarette sales in Japan and reinforce its position as the world's third-largest tobacco firm behind Marlboro maker Altria Group and British American Tobacco.
Japan Tobacco said it has agreed to pay £11.40 in cash per share for Gallaher, the maker of Benson & Hedges and Silk Cut cigarettes in Europe, valuing Gallaher at £7.5 billion, or £9.75 billion including debt.
Shares in Japan Tobacco, which makes Mild Seven cigarettes and owns the Camel, Winston and Salem brands outside the United States, closed up 3.1 per cent to 597,000 yen today. Gallaher shares were off 0.4 per cent at £11.495 by 9.03am, which analysts said reflected some lingering hopes of a rival bid.
Gallaher said it intends to recommend the deal to its shareholders, while Japan Tobacco said it was aiming to complete the acquisition in the first half of 2007.
Many analysts said Japan Tobacco's offer was at a fair price and Gallaher shareholders should accept, and that the bidder was in a strong position backed by its hefty cash pile and the low cost of raising capital in Japan.
Japan Tobacco, 50 per cent owned by the Japanese government, will use cash reserves and loans from Merrill Lynch to fund the purchase.