Japan Tobacco announced in September that it will purchase the international rights to the cigarette brand Natural American Spirit from Reynolds American Inc. (RAI), along with the international companies that sell the brand outside the United States. The all cash deal is reportedly valued at about US$5 billion.
RAI president Susan Cameron said in a statement that it made sense to do the deal with a company that had an international infrastructure already in place rather than building such a global marketing framework on its own.
“Natural American Spirit has achieved excellent international growth over the past several years,” Cameron said. “When backed by the strength of the JT group’s international distribution, sales force, and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate.” Germany, Switzerland, and Japan are the biggest markets for Natural American Spirit cigarettes and tobacco.
The transaction is expected to be completed by early 2016. Regulatory permission must be obtained from several countries. Santa Fe Natural Tobacco Company Inc., a Reynolds subsidiary, will hold onto the rights to the Natural American Spirit name in the US. Reynolds acquired Santa Fe in 2001, two years after it sold its international operations to JT.
Bonnie Herzog, an analyst at Wells Fargo Securities, said the transaction would be a win-win scenario for RAI shareholders. “Any transaction would monetize an asset that we have long believed to be underappreciated and undervalued by the market,” wrote Herzog. “(It is) a very smart and strategic move by Reynolds.”
Nik Modi, an analyst with RBC Capital Markets, was quoted as saying the sale lessens Reynolds’ exposure to unstable foreign currency exchange rates, which have hampered overall revenue levels in recent quarters for some other American companies.