Glenboden M & A Originations

BAT makes further regional tobacco deal with acquisition of SkanTabak

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Origination Status buyer announcement of business unit acquisition, February 2008
Asset Skandinavisk Tabakskompagni AS (Denmark), no.1 tobacco producer in Scandinavia
Buyer British American Tobacco plc (UK), no.2 global tobacco producer
Seller Skandinavisk Holdings (ST), Swedish foundation and conglomerate
Buyer Rationale participation in global tobacco consolidation round, operating synergies
Seller Rationale acceptable valuation, global consolidation timing
NBs ST has 60% cigarette market share in Scandinavia
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We predicted that BAT would acquire ST as far back as December 2006, as a response to JTI’s acquisition of Gallaher at that time. That outcome became almost inevitable, six months later, when BAT failed to step into the Imperial – Altadis fray. After this deal, it looks like this global tobacco consolidation round is now over; where there were seven major international cigarette majors two years ago, there are now only four left. With ST now gone, there are arguably no more ‘regional’ champions left in Europe either.

BAT seems to have bought both ST at a reasonable valuation, at just over x11 EBITDA. This is at a discount to the international comparables of the Gallaher and Altadis deals, which were in the x13 – 14 EBITDA range. Still, there are good reasons for a lower valuation in this case.

BAT was already a significant minority shareholder of ST before this deal, with a 32% stake, and so the vendors probably had no serious alternative buyer. What’s more, ST is already an efficient and highly profitable player in developed markets, so the upside potential for BAT is limited. Finally, although ST is a regional leader in Scandinavia, it doesn’t qualify as a ‘global’ player in the way that Gallaher and Altadis did.

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THIS LEAD'S VALUATION
Size (€ mln) 2.670
Sector tobacco
Asset Quality global no.7 branded
Seller foundation
Buyer large plc
P/S n/a
P/Ebitda 11,2
Type total consideration
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