July 31, 2008 / 5:18 PM / in 9 years

UPDATE 2-Philip Morris to buy Canada's Rothmans for C$2 bln

(Adds Rothmans, Canadian Competition Bureau comments)

CHICAGO, July 31 (Reuters) - Philip Morris International Inc (PM.N) said on Thursday it agreed to acquire Rothmans Inc ROC.TO for about C$2 billion ($1.96 billion) in a deal that would give it total control of Canada’s No. 2 cigarette maker.

The deal offers C$30 a share for Rothmans, whose sole holding is a 60-percent stake in cigarette maker Rothmans Benson & Hedges Inc (RBH). Philip Morris already owned 40 percent of the cigarette maker.

Philip Morris’s offer represents almost a 17 percent premium over Rothmans’ 20-day average trading price through July 30.

“Rothmans shareholders will receive a significant cash premium and PMI consolidates its presence in a market that we deem financially attractive and of strategic importance going forward,” Philip Morris Chairman and Chief Executive Louis Camilleri said.

Rothmans and RBH earlier Thursday said they had already paid a C$100 million fine and agreed to pay C$450 million more over the next 10 years to settle a case after pleading guilty to helping smugglers.

Philip Morris also cut its reported second-quarter earnings to 86 cents a share from 87 cents to reflect a noncash charge of $124 million for its share of the RBH’s portion of the settlement.

Philip Morris was spun off from Altria Group Inc (MO.N) at the end of March.

RBH, whose main customers are wholesalers that distribute to retailers across Canada, shipped 10.7 million cigarettes into the Canadian market in the most recent fourth quarter and said it controls about 33 percent of Canadian market share.

Its cigar, pipe tobacco, duty-free and export businesses combined represent about 7 percent of its annual revenue.

“We’re a small fish in a big pond to some extent in Canada,” said Rothmans spokesman Barry Joslin.

“We’ve always been faced with the prospect that both of our competitors are aligned with international companies that have many more resources than we do.”

RBH processes leaf tobacco at plants in Brampton, Ontario and Quebec City, Quebec.

“Philip Morris has no intentions of making any significant adjustments to our manufacturing base here, in fact they intend to invest in product and manufacturing improvements,” Joslin said.

Toronto-based Rothmans is Canada’s only publicly traded tobacco company. A predecessor company, Rock City Tobacco Co, began operations in 1899 in Quebec City.

Canada’s Competition Bureau said it will be review the proposed transaction to determine if there are any issues, but could not comment on the timing.

Rothmans shares were up C$3.49 at $29.66 on Thursday on the Toronto Stock Exchange, while Philip Morris shares were down $1.11 at $52.26 on the New York Stock Exchange. (Reporting by Brad Dorfman and Susan Taylor; editing by Jeffrey Benkoe)

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