Business / Corporate

Japan Tobacco to buy Bangladesh firm for $1.5 billion

Bloomberg

Japan Tobacco Inc. has agreed to buy a Bangladeshi cigarette manufacturer for 124.3 billion taka ($1.5 billion), taking its acquisition strategy to one of Asia’s fastest-growing economies.

The Tokyo-based company is acquiring the tobacco business of Akij Group, the second-largest tobacco company in Bangladesh, Japan Tobacco said in a statement Monday.

“With this investment, we continue to accelerate our expansion in emerging markets that matter,” Mutsuo Iwai, Japan Tobacco’s executive vice president, said in the statement. “Akij’s substantial market share places us straight at the No. 2 position in Bangladesh.”

Japan Tobacco has been buying up businesses in markets where smoking is more prevalent, which has helped cushion sales in the face of tighter smoking regulations in most areas around the globe and dwindling demand at home.

The company has spent more than $3 billion since last August, picking up companies in Russia, Indonesia and the Philippines.

The strategy is in contrast to rival Philip Morris International Inc., which hasn’t made an acquisition of traditional tobacco assets in at least four years as it focuses on next-generation devices.

While Japan Tobacco is also investing in new products, announcing last week it will spend more on smokeless devices, it’s also betting emerging markets will take longer to implement tobacco restrictions, providing opportunities for growth.

“It’s not a cheap deal on the face of it,” said Bloomberg Intelligence analyst Duncan Fox. He said Japan Tobacco had the balance sheet to do the deal. What matters more is picking an emerging market with the right growth and favorable regulatory climate, he said.

Japan Tobacco entered Bangladesh’s market in 2015 and held a 0.1 percent market share as of 2017, according to the company’s estimates. Akij, with brands such as Navy and Sheikh, is seeing industrywide volume growth of about 2 percent a year in Bangladesh, where it holds about 20 percent of the market.

“Bangladesh is one of the fastest-growing economies in the world with a pro-business mindset, which is why we are keen to expand our presence in the country,” said Eddy Pirard, CEO of Japan Tobacco International. “The tobacco business of Akij is profitable, has state-of-the-art manufacturing facilities and a strong distribution network and workforce.”

The deal is expected to close in the third quarter, and Japan Tobacco said it doesn’t expect it to impact its earnings for the current fiscal year. The transaction will be funded with existing cash and loan. Japan Tobacco had ¥237.4 billion ($2.1 billion) in cash, cash equivalents and short-term investments as of June 30, according to compiled data.