Imperial top choice for Reemtsma, say analysts

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By Gavin Lipsith

UK tobacco manufacturer Imperial Tobacco is analysts' favourite to acquire German rival Reemtsma, according to media reports.

The news comes after Japan Tobacco International, the other serious contender in the sale, announced last week that it was no longer considering a bid.

Although Franco-Spanish firm Altadis and Imperial's main UK competitor Gallaher are technically still in the running, analysts have suggested that the two companies may not be able to afford the asking price. Altadis is currently closing plants and laying off staff to offset a 10% deficit in its three-quarter year profit, and would have to finance a bid by selling assets or raising debt. Similarly, Gallaher has too much debt after it purchased Austria Tabak for Eur2.1bn ($1.8bn) last year.

On the other hand, Imperial's stock has gained 31% over the past year, the second-largest increase of any European tobacco company. The supplier, whose main brands in duty-free are Lambert & Butler and Superkings, also has a good track record with acquisitions. Since 1997 Imperial has made six overseas acquisitions, and in the same period operating profit from outside the UK has risen from 20% to 46%.

By purchasing the world's fourth-largest tobacco group Imperial would double its annual sales to around $4bn and gain valuable business in Eastern Europe, where cigarette sales are outpacing the rest of the region. The two companies combined would also have a formidable presence on the duty-free cigarette market, controlling eight of the top 50 products.