Takeover bid from Japan Tobacco on Imperial Tobacco extremely unlikely, Citi says
Imperial Brands
1,718.00p
16:35 18/03/24
A takeover bid for Imperial Tobbaco from its Japanese rival, Japan Tobacco was unlikely, analysts at Citi said.
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Japan Tobacco Inc.(Fukuoka)
n/a
n/a
Tobacco
26,781.43
16:59 18/03/24
The chief reason is that Japanese laws require the government to maintain a one-third stake in JT.
To circumvent antgi-trust legislation JT might buy 60% of Imperial, but that would push its leverage, in terms of net debt to EBITDA to near 5%, far exceeding the levels compatible with an 'investment grade' rating on its long-term debt.
To circumvent that, JT could issue equity but that would force Tokyo to subscribe the capital increase.
That, analysts Adam Spielman, Nobuyoshi Miura, Jemima Benstead and Ravi Sharma said seemed "extremely unlikely".
As well, an acquisition of Imperial does not sit well with JT's global strategy; it would dilute the Asian firm's growth even if it would give it a beachhead in some new markets.
Furthermore, "JT would also end up with awkwardly split assets in Europe because of the anti-trust issues."
Neither would it help JT in its running battle with iQos directly and in the short-term it might in fact worsen the prices wars in the UK and Russia, the analysts said.
Citi reiterated a 'Neutral' recommendation on Imperial Tobacco's shares with a target price of 3,700p.