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Business

Japan Tobacco nears final deal for Philippines' Mighty

Acquisition would expand JT's presence in growth market

TOKYO -- Japan Tobacco appears likely to reach a final agreement soon to purchase Philippine cigarette manufacturer Mighty for 45 billion pesos ($887 million), primarily for assets related to the production and sales of cigarettes.

An overseas JT subsidiary has obtained exclusive negotiating rights and is hammering out a deal, and by Friday had signed a memorandum of understanding on the acquisition. Details still need to be fleshed out.

The deal would be JT's third-largest in the cigarette business in the past decade, trailing only the more than 2 trillion yen ($18 billion) purchase of British-based Gallaher Group and the acquisition of non-U.S. rights to a Reynolds American brand for around 600 billion yen.

Mighty is a major player in the Philippine cigarette market, with a 20% share, but is facing legal action from authorities on charges that it used counterfeit tax-paid stamps to evade taxes. The company's plan is to use some of the proceeds from a sale of its business to pay the government, and to date a number of suitors have showed interest. Manila said Thursday it will accept 3.5 billion pesos from Mighty as partial payment of its unpaid taxes.

Faced with little room for growth in cigarette sales in industrialized nations, JT is hoping to cultivate Asian markets, where it has a weak presence. It just opened a cigarette plant in the Philippines in April and is looking to strengthen its operations there in anticipation of market expansion accompanying economic growth.

U.S. tobacco giant Philip Morris International has a 70% share of the Philippine market, while JT has just 6%, according to British market research company Euromonitor International.

Other than in China, which still has a government monopoly on cigarette sales, global market share is being contested by three big players -- Philip Morris, British American Tobacco and JT. Some 60% of JT's sales come from overseas, as it has operations in around 120 countries, but it lags behind its two major competitors, which do business in some 200 countries.

Viewing cultivation of emerging markets as a priority, JT has been pursuing mergers and acquisitions in Africa and South America since 2011. Emerging markets accounted for more than 30% of its overseas sales in 2016.

(Nikkei)

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