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Business

Japan Tobacco buys Indonesian clove cigarette businesses for $1bn

Deal opens door wider to world's No. 2 cigarette market

TOKYO -- Japan Tobacco will purchase an Indonesian cigarette maker and its distributor for $1 billion, including debt, in its first significant Southeast Asian acquisition.

The Tokyo-based group said Friday it has agreed to buy all of Karyadibya Mahardhika and Surya Mustika Nusantara, purveyors of kretek, a type of cigarette originating in Indonesia that contains tobacco and cloves.

Karyadibya operates nine production sites and generated sales of 6.82 trillion rupiah ($512 million) last year. It holds a 2.2% Indonesian market share, according to JT.

Indonesia is the world's second-largest cigarette market behind China. Some 285 billion cigarettes were sold there last year, with further sales growth expected in Southeast Asia's most populous nation.

JT has sold its Mevius and other brands in Indonesia but its market share has struggled to reach 1%. The company seeks to speed up its growth by making use of the production and sales networks to be gained in the deal.

JT operates in about 120 markets worldwide, much fewer than the roughly 200 covered by leading groups Philip Morris International of the U.S. and British American Tobacco of the U.K. In light of diminishing growth potential in advanced economies, the Japanese company is focusing on emerging markets in Asia, Africa, South America and elsewhere to broaden its reach.

In the past two years, JT acquired companies in Brazil and the Dominican Republic, and has taken a stake in Ethiopia's National Tobacco Enterprise. The company is awaiting approval from antitrust authorities in the Philippines to buy assets of local cigarette maker Mighty.

In 2016, JT's emerging-market sales came to 137.9 billion sticks -- more than 30% of its total overseas tally.

(Nikkei)

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