Japan Tobacco Group agreed to buy Vector Group Ltd, the fourth-largest U.S. tobacco maker, for $2.4 billion, in a move to fill a void in the Russian market, raising its market share in the U.S. to about 8 percent from 2.3 percent and funding its further investment in cigarette products.
Buying America’s fourth-largest cigarette maker for $2.4bn
Japan Tobacco Group (JT Group) agreed to buy U.S. tobacco maker Vector Group Ltd. for about $2.4 billion, expanding its presence in the U.S. as a change of strategy after the war stymied Russia’s growth, BNN Bloomberg reported on August 21st.
The company plans to buy Miami-based Vector Group Ltd. for $15 a share, according to a statement Wednesday (21). The purchase price is a whopping 7.2% higher than Vector’s purchase price in New York on Tuesday (20).
According to Eddy Pirard, chief executive officer of JT International (JT International). The deal is said to increase the market share of Japanese cigarettes in the U.S. from 2.3% to about 8% and allow it to own two of the top 10 U.S. cigarette brands. The U.S. is the world’s most lucrative market for cigarette companies.
JT owns brands such as Mevius, and Reynolds and has been expanding internationally since 1999, when it acquired Revius.J. in non-U.S. operations. With tobacco sales declining in Japan and other developed markets, the company has been looking to emerging markets while investing in alternative products and seeking larger expansions.
Duncan Fox, an analyst at Bloomberg Intelligence, said that:
- “While tobacco sales are declining at a double-digit rate, strong pricing power will allow the company to generate sizable cash flows for future investments in low-risk products in the U.S.”
JTI acquired Indonesian clove tobacco maker Karyadibya Mahardhika in 2017 and the Bangladeshi company’s Akij cigarette business, Group, in 2018.
JTI was forced to stop investing in this market when Russia’s growth plans were interrupted by the 2022 invasion of Ukraine. The company has further expanded into the second-largest tobacco market in the U.S., which will help partially fill the gap.
The market share will increase to 8%
JTI also plans to invest the cash flow generated by the Vector deal in products including heated cigarettes.
JTI has partnered with Altria Group to promote its Ploom heated cigarette product in the U.S. and said earlier this year that it plans to increase other expenses by 50 percent and expand into a new market.
Vector, the fourth largest cigarette company in the US, owns Eagle20s and Liggetttt, Liggett brands such as Select.
Its shareholders’ meeting reportedly unanimously supported the sale.
Shares of Vector rose 7.6% to $15.05 in pre-market trading on the New York market. As of Tuesday (20), the stock had risen 24%.
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