The Strategist

Japan Tobacco Adds Another Brand to The Collection

09/29/2015 - 15:38

US tobacco company Reynolds American sells its brand Natural American Spirit to Japan Tobacco for $ 5 billion, according to the company’s press release. The transaction is expected to be approved by antitrust regulators in early 2016 and will be closed shortly thereafter.

Jason Scragz via flickr
Jason Scragz via flickr
The deal includes the rights to use the brand and related trademarks only in international markets, while Santa Fe Natural Tobacco, 100% "daughter" of Reynolds, will operate on the US market. Japan, Germany and Switzerland are the brand’s major international markets.

With the sale of Natural American Spirit, Reynolds gets rid of all international operations and now can focus on the domestic market.

The fact, that the assets of Reynolds could be sold to Japan Tobacco, became known on September 25. According to Bloomberg citing sources familiar with the situation, this way Japan Tobacco intends to expand its presence in the market. Earlier, Japan Tobacco’s President Mitsuomi Koizumi said that 2015 will be a year of investment for JT.

Japan Tobacco Inc. is the third largest producer of tobacco in the world, its major brands include Winston, Mevius, LD, Glamour and others. The headquarter is located in Tokyo.

The American company Reynolds American Inc. was formed in January 2004. Its allied companies produce and sell cigarette brands Pall Mall, Kool, Winston, Salem, Doral, Misty, Capri and others.

More recently, international broker WhoTrades Ltd. (WT) awarded assessment Reynolds American, Inc.’s shares. Reynolds shares are traded on the New York Stock Exchange NYSE (ticker - RAI) and are included in the calculation of the S&P 500 Component. WT analysts recommend buying shares of the tobacco company for medium-term investment with a target price of $ 47 per unit (technical term goal is $ 44).

Reynolds American has recently published a good financial report for the II quarter of 2015, the study said: "The revenue increased by 11% (y/y) to $ 2.40 billion, and earnings per share shot up by 14.6% (y/y) to $ 1.02, beating experts' expectations of 6.4%. The good results of the II quarter of 2015 and the optimistic outlook for the future prospects of the company's management allowed Reynolds to raise its quarterly dividend by 7.5% (y/y) to 36 cents per share, which corresponds to a dividend yield of 3.3%."
The WT positively assess Reynolds’s activity of the market of mergers and acquisitions (M&A): "For example, last year, the company bought a different tobacco company Lorillard Tobacco Company for $ 27 billion. This transaction will significantly expand the market and product pool."