Imperial Tobacco to buy US cigarette brands for $7.1 billion

Tue Jul 15, 2014 11:08am EDT
 
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By Martinne Geller

LONDON (Reuters) - Imperial Tobacco Group Plc IMT.L plans to buy the leading U.S. e-cigarette brand blu as part of its $7.1 billion acquisition of U.S. cigarette brands, being sold as part of Reynolds American Inc's (RAI.N: Quote) $27.4 billion purchase of Lorillard Inc LO.N.

Imperial's purchase, meant to address potential antitrust objections to the marriage of the United States' No. 2 and No. 3 tobacco firms, also includes Maverick, Salem as well as the international and U.S. rights to blu e-cigarettes, which control nearly half of the U.S. e-cigarette market.

Analysts had not expected the blu brand to be part of Imperial's haul from the deal, plans for which were first reported by Reuters in May.

"Blu was probably the sweetener that persuaded them to pick up what can probably most politely be described as third-tier brands," said Philip Gorham, an analyst with research firm Morningstar.

After adjusting for the present value of tax benefits, expected at $1.5 billion, Imperial said the net price of $5.6 billion implied a multiple of 6.9 times the brands' core earnings or EBITDA.

This was "very much at the low end" of multiples for tobacco deals, said Imperial Chief Executive Officer Alison Cooper on a conference call.

"It's a very good deal," Cooper said, noting it would take Imperial from having only 3 percent of the U.S. market with its USA Gold brand to 10 percent, transforming Imperial "from a distant No. 5 to a significant No. 3."

By contrast, Reynolds, maker of Camel cigarettes, is buying Newport-maker Lorillard for $27.4 billion, or about 13 times 2013 core earnings.   Continued...

 
View of a sign outside the Imperial Tobacco Seita cigarette plant in Carquefou, near Nantes, April 15, 2014.  REUTERS/Stephane Mahe