Philip Morris International (PMI) entered into an agreement to acquire 100% of the shares of privately owned Colombian cigarette manufacturer Productora Tabacalera de Colombia, Protabaco Ltda. (Protabaco), for $452 million.
Protabaco is the second largest tobacco company in Colombia, with an estimated volume of 6.1 billion cigarettes and an approximate market share of 31.8% in 2008, with leading brands such as Mustang, Premier and President. The acquisition is believed to be a strategic business fit, in order to build on the company’s business in Columbia.
The deal is expected to be marginally accretive to PM’s earnings and is expected to close in the second half of 2009. However, final approvals are still pending. In 2005, the company had acquired another Columbian company, Compañía Colombiana de Tabaco S.A. (Coltabaco).
In addition, with increasing regulation over tobacco, there has been a shift towards smoke free tobacco products and snus in the recent past. In accordance with the trend, Phillip Morris International (PM) entered an agreement to acquire South African snuff and pipe tobacco operations of Swedish Match AB (SWMA) for ZAR 1.75 billion (approximately $222 million). According to the company’s estimate, Swedish Match South Africa represents approximately 31% of the tobacco consumption in South Africa, with principal brands being Boxer, Best Blend and Taxi.
PM believes the acquisition to be a strategic fit to the existing business in South Africa, and management expects to boost the sales of smokeless tobacco products in order to mitigate the adverse impact of decline in demand for cigarettes due to smoking bans, price increases and health hazards. Further, management also believes that Swedish Match’s extensive expertise of manufacturing, developing and marketing of snuff and snus (Snus tobacco is a moist snuff most commonly packaged in a small tea-bag-like pouch which is placed against the users’ gum) in Scandinavia and the U.S gives it the required core competency.
In February 2009, PM had entered into an agreement with Swedish Match AB (SWMA), the parent company, to make and sell Swedish style snus and other smoke-free tobacco products outside the Scandinavia and the U.S.
Altria Group (MO), through the acquisition of UST, is one of the leading manufacturers of smoke-free tobacco, and has a 57.4% market share of the category. Reynolds America (RAI) is the other strong player in the category, through its Camel Snus and Conwood smokeless tobacco products.
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