Japan Tobacco to buy Tribac Leaf

Japan Tobacco on Friday said it would buy most of the UK’s Tribac Leaf, a tobacco leaf supplier, and set up a joint venture in the US to secure supplies amid high tobacco leaf prices.

The move is part of a push by the world’s third-largest tobacco group to make overseas acquisitions amid stagnating demand at home and in other developed markets. Japan Tobacco has about $1bn available for deals, it said.

It has already made overseas purchases, paying £7.5bn for UK-based tobacco company Gallaher in 2006, making it the biggest overseas acquisition by a Japanese company. That deal gave Japan Tobacco access to the Russian market, the world’s third-biggest, as well as to brands such as Silk Cut and Benson & Hedges.

“The strategy of looking for overseas investments is a good one but $1bn isn’t a lot of money in this industry,” said Toby Williams, an analyst Macquarie Capital.

“Most of the acquisition activity ... is over now and so I can imagine they’ll look for small companies in developing countries.”

Japan Tobacco would not disclose the amount it was paying for Tribac . The company, which is half-owned by the Japanese government, said it would not buy Tribac’s Zimbabwe operations but buy leaf from that business instead. It is Japan Tobacco’s first acquisition of a supplier.

The company said it was separately setting up a joint venture with tobacco suppliers Hail & Cotton and J.E.B. in the US to procure and process tobacco leaf. “The acquisition is positive to secure supplies given that tobacco companies want to ensure they have exactly the same blend of tobacco for their products worldwide and they are locked into that blend for an extended period of time,” said Mr Williams.

Japan Tobacco, which sells Camel cigarettes, said: “In the past few years, sharp price increases of various crops have caused leaf tobacco costs to stay high and induced volatility in the supply sources. Under these circumstances the acquisition of Tribac and the establishment of [the joint venture] will offer the JT Group enhanced stability and capability in procurement of high quality leaf tobacco and allow it to grow its tobacco business in a sustainable manner.”

Japan Tobacco gets about half of its annual revenue from outside Japan, with the Commonwealth of Independent States its biggest overseas market.