8th Feb 2007 07:00
Imperial Tobacco Group PLC08 February 2007 IMPERIAL TOBACCO GROUP PLC ACQUISITION OF COMMONWEALTH BRANDS Imperial Tobacco Group PLC today announced that it has agreed to acquire 100 percent of CBHC Inc, which trades as Commonwealth Brands, from Houchens IndustriesInc for a total cash consideration of $1.9 billion (£974 million). After takinginto account the net present value of tax benefits arising as a result of thedeal, the net cost of the acquisition is $1.5 billion (£769 million). In theyear to 30 September 2006, Commonwealth Brands generated earnings beforeinterest, tax, depreciation and amortisation (EBITDA) of $174 million (£89million). The Group anticipates that the acquisition will be completed by April 2007 andwill be earnings accretive in the current financial year, before taking accountof brand amortisation and deferred tax on intangibles. The Group alsoanticipates that the returns will exceed its weighted average cost of capital inthe first full year. Commonwealth Brands is based in Bowling Green, Kentucky and is the fourthlargest cigarette manufacturer in the United States of America, with 3.7 percent of the 376 billion US cigarette market. Commonwealth Brands employs around720 people, including a sizeable sales force with excellent trade relationshipsnationwide, and has a factory which currently manufactures around 14 billioncigarettes a year but has the capacity for 30 billion cigarettes a year. Gareth Davis, Chief Executive of Imperial Tobacco Group, said: "This is an excellent deal for Imperial, which will create significant value forour shareholders, and is consistent with our strategy of entering the US tobaccomarket in a low risk manner. I am delighted that we will finally have the US asa significant part of our international footprint and believe that we willbenefit considerably from having the US in our market portfolio. "Commonwealth Brands is a terrific, young business which gives us immediate andsignificant access to the world's most profitable tobacco market. Theacquisition provides us with an enhanced operating platform from which we canrapidly launch our own high quality brands. We will also now avoid the costsassociated with our original organic entry, which we estimate would have been inthe region of $20 million a year. "We will further benefit from the skilled and committed employees atCommonwealth Brands, who share our focus on sales excellence and effective costmanagement. I am particularly pleased that the experienced senior managementteam has agreed to stay on to help us drive the growth of our US business. "As well as its vast cigarette market, the US has a growing market in othertobacco products and papers. Given the strength of our multi-product portfolioand our world leadership in fine cut tobacco and papers, we believe we are verywell positioned to take advantage of the growth in these sectors." Jimmie Gipson, Chairman of Houchens Industries Inc, said: "The Board has approved this transaction and is very pleased to have found apartner like Imperial that recognises the value of the people and infrastructurethat has been created at Commonwealth, and has the intention of building uponthat infrastructure to create additional opportunities for the management andemployees." In the year to 30 September 2006, Commonwealth Brands generated revenue lessduty of $348 million (£178 million) and earnings before interest and tax of $164million (£84 million). Profit before tax for the year was $59 million (£30million) after one-off costs of $64 million associated with debt refinancing.Gross assets at 30 September 2006 were $1.2 billion (£615 million). In the first quarter of its current financial year, Commonwealth Brands'earnings before interest and tax grew by 8% to $41 million. We anticipate thatthis growth trend will develop further with the benefit of a price increase inmid-December 2006. Commonwealth Brands manufactures and sells five high quality discount cigarettebrands across the US and in Puerto Rico, which together account for 13.2 percent of the discount segment. The two key brands are USA Gold and Sonoma. USAGold is the eighth best-selling cigarette brand in the US and Sonoma thefourteenth. Commonwealth Brands' other cigarette brands are Montclair, Malibuand Riviera. Total sales in the year to 30 September 2006 were 14 billioncigarettes. Commonwealth Brands manufactures its cigarettes in a single factory inReidsville, North Carolina. Imperial Tobacco Group's approach of low cost, highquality manufacturing is embedded in this facility. Commonwealth Brands' key brands were launched in 1993/94 and therefore have ashort history. Commonwealth Brands was the first tobacco manufacturer tovoluntarily sign the Master Settlement Agreement (MSA) in 1998 and has compliedwith MSA restrictions on advertising and marketing. The Company has never lostor settled any product liability claim, has not been named in any class actionlawsuits and was not a defendant in the Department of Justice case. These factors, combined with the recent and considerable improvements in the USlitigation landscape, leads the Group to conclude that the overall US litigationrisk for Imperial Tobacco and Commonwealth Brands is low, and the Group is veryconfident of being able to manage that risk as effectively as it has in theother markets in which it operates. The acquisition will be financed by new debt facilities and is subject toHart-Scott-Rodino antitrust clearance, the approval of the Employee StockOwnership Plan as sole shareholder of Houchens Industries Inc and customaryclosing conditions. The Group's share buyback programme will be temporarily suspended as a result ofthis acquisition. ENDS UK Analysts and Investors Gareth Davis, Chief Executive of Imperial Tobacco Group, will give apresentation today for analysts and investors at 9.30am at the Barbican Centre,London EC2Y 8DS. Attendees are advised to use the main Silk Street entrance tothe Centre and register for the presentation at the Garden Room on Level 3.Refreshments will be available from 9am. The presentation will be webcastthrough www.imperial-tobacco.com Gareth Davis, Chief Executive, will host the following conference calls, inwhich there will be an opportunity for questions: US Analysts and Investors - 13:30 GMT (08:30 EST)In order to participate on the call, please dial +1 718 354 1362. UK Newswires - 07:30 GMTIn order to participate on the call, please dial 020 7138 0829. UK National Media - 12:00 GMTIn order to participate on the call, please dial 020 7365 1856. German Media - 1100 GMT (1200 German time)In order to participate on the call, please dial +49 (0)89 2030 3244 NOTES TO EDITORS Conversion RateUS$1.95 = £1 Imperial Tobacco Group Imperial Tobacco Group is the world's fourth largest international tobaccocompany. The Group manufactures and sells a comprehensive range of cigarettes,tobaccos, rolling papers, filter tubes and cigars in over 130 countriesworldwide. It has around 14,500 employees and 32 manufacturing sites. ImperialTobacco Group currently sells papers and tubes in the US through its subsidiaryRobert Burton Associates, based in New Jersey. ENQUIRIES Alex Parsons John Nelson-SmithImperial Tobacco Group Imperial Tobacco GroupGroup Media Relations Manager Investor Relations ManagerTel +44 (0)7967 467241 Tel +44 (0)7919 391866 Copies of our announcements are available on our website:www.imperial-tobacco.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Imperial Brands