Sharing a cigarette is a great way to bond. Friday’s recommended bid by Japan Tobacco of Gallaher was certainly friendly – the managements believe the companies complement each other “perfectly”. Might other suitors for Gallaher emerge, and is further consolidation now inevitable?

It will be hard to compete with Japan Tobacco’s initial £7.5bn cash offer – the largest overseas takeover by a Japanese company. This represents a heady 12 times 2006 forecast earnings before interest, tax, depreciation and amortisation. Japan Tobacco has $8bn in net cash and equivalents on its balance sheet, and a compliant government shareholder, so rivals may not fancy a bidding war. Gallaher’s takeover would leave only one major acquisition opportunity in Europe, partly due to competition concerns.