NEW YORK (The Deal) -- Japan Tobacco (JAPAF) announced an agreement Tuesday, Sept. 24, to buy the international rights to Reynolds American's (RAI) Natural American Spirit division for about $5 billion to extend its offering of premium cigarettes.
The operations changing hands distribute and market Natural American Spirit additive-free and organic cigarettes as well as roll-your-own tobacco mainly in Europe and Asia, with the largest markets being in Japan, Germany and Switzerland. As in the U.S., the products compete in the premium category.
For the Tokyo-based buyer, the acquisition will be its biggest since its $15 billion purchase of Benson & Hedges maker Gallaher in 2007.
The acquisition comes as Japan Tobacco tries to compensate for falling sales at home, where its market share fell from 60.4% last year to 59.6% in August, according to its Web site. By contrast, Japan now accounts for the majority of Natural American Spirit's sales volume outside the U.S.
"Natural American Spirit, which has a strong and international presence in a premium priced category, will allow the JT Group to further extend it brand portfolio," said Japan Tobacco president and CEO Mitsuomi Koizumi in a statement. "This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our group's business foundation."
Japan Tobacco, which also owns activities in pharmaceuticals, beverages and processed foods, is 33.3% owned by the Japanese government.
Though the company traces its roots to the 1898 establishment of the Japanese Monopoly Bureau to sell domestic leaf tobacco, its modern history began when Japan Tobacco was founded in 1985, the same year the Japanese market was opened to foreign tobacco makers. Japan Tobacco was partially privatized in 1994 through an IPO.
Over the years the group expanded its global footprint mainly through acquisitions, from RJR Nabisco Holding's non-U.S. tobacco operations for $8 billion in 1999 to the purchase of Florida-based e-cigarette maker Logic Technology Development, which was agreed in May.
Today, Japan Tobacco sells more than 90 brands in 120 countries. The Natural American Spirit acquisition will add about 280 employees, mainly in Europe and Asia, to the buyer's 26,000-strong workforce.
Reynolds acquired Natural American Spirit in late 2001 through the $340 million buy of privately held Santa Fe Natural Tobacco. It is keeping trademarks and rights to the Natural American brand in U.S. markets and territories, including U.S. duty-free locations.
Reynolds president and CEO Susan M. Cameron noted that once the deal is complete, the international rights to all of Reynolds' operating companies' cigarette trademarks will be owned by foreign tobacco makers, allowing Reynolds to focus on brand growth in the U.S.
The deal comes just over three months after Reynolds completed the $27.4 billion buy of Lorillard and related asset sales. It is subject to approval from regulators in several countries and is slated for completion in early 2016.
Reynolds took financial advice from JPMorgan Securities' Jamie Grant and Lazard's Max de Genaro, and legal advice from Jones Day partner Randi C. Lesnick.
A spokesman for Japan Tobacco declined to disclose the company's advisers.
-David Marcus contributed to this report.