Imperialâs acquisition of Altadis ends this round of tobacco consolidation
- January 01, 2008
||group acquisition completed, January 2008;
||Altadis Group (Spain and France), no. 5 global tobacco producer;
||Imperial Tobacco Group plc (UK), no. 4 global tobacco producer;
||expansion of geography, brands, products, scale; operating synergies;
||acceptable valuation, attempts to remain independent have failed;
||this acquisition will consolidate Imperialâs position as no. 4 global tobacco producer.
With Imperial finally succeeding in its acquisition of Altadis, we canât see any other global tobacco consolidation in the foreseeable future. On the other hand, one can anticipate that both Philip Morris and BAT will continue to acquire national no. 1 or no.2 brands, often through privatizations, all over the globe. Thereâs also the probability that BAT will finally acquire the majority stake in House of Prince, the largest Scandinavian tobacco player. One also shouldnât forget the potential for secondary sales after the Altadis deal, in particular of its Logista arm.
In the wake of the JTI â Gallaher deal, and again later when Imperial made its first (rejected) bid for Altadis, we predicted that an Altadis-Imperial tie-up is too much of a âmarriage of equalsâ. We believed that the real acquiror, hiding in the shadows, will be BAT, and that their quarry will be Imperial not Altadis. The reason why we thought Altadis would survive, not Imperial, is that it has a robust âthree-leggedâ business model, spanning cigarettes, cigars and logistics, giving it arguably more âstand-aloneâ sustainability than the more cigarette âfocused Imperial. We believed that, overall, more shareholder value would be created if BAT acquired Imperial, because of the greater synergies in that scenario.
Nonetheless, in the absence of BATâs participation, an Imperial-Altadis tie-up is the second best thing for tobacco consolidation at this time, and itâs to be expected that Imperial would take the lead, for three reasons. Firstly, Imperial has the better track record in acquisition; Altadis hasnât made any significant deals since it was created in 1999 through the merger of Franceâs Seita and Spainâs Tabacalera; since that time Imperial has acquired Germanyâs Reemtsma, the Davidoff brand and, most recently, Commonwealth Brands in the US. Secondly, Altadis had a weak performance in 2006, including a decline in sales and the loss of its no.1 position in Spain (Fortuna brand). Thirdly, Altadis shareholders may be impatient with the time taken to unify top management and complete a restructuring programme.
There is significant risk, however, of conflicts over strategy, as well as social problems, in an Imperial-Altadis merger, that might leave shareholders wishing that BAT had acquired Imperial after all. Imperial has announced cost synergies of âŹ 300 mln per annum, and a divestment programme for non-core assets valued at âŹ 650 mln; numbers that were stretched by the need to find âadditional valueâ in order to justify increasing Imperialâs initial offer. This this may jar with Altadisâ interpretation of the deal, in particular Imperialâs undertaking to maintain a substantial presence in France and Spain, integrate the businesses âwithout prejudiceâ, and to honour Altadis employeesâ contractual, pay and benefits arrangements. Strategically, Altadis believes its logistics business to be a core one, providing a âhedgeâ to tobacco revenues and an avenue for diversifying beyond tobacco. Imperial, for its part, has simply said that it will review options for the Logista business, after the acquisition.