This acquisition is considered to be in line with Japan Tobacco's tobacco business strategy. The acquisition is expected to increase a continuously growing and historically profitable business, and is expected to improve the company's return on investment in combustible tobacco.
According to the Futu News app, Japan Tobacco (Japan Tobacco) has acquired the circulating shares of Vector Group (VGR.US) for $15 per share in cash. The total market capitalization of the transaction is approximately $2.4 billion, excluding redemption or debt repayment. The boards of directors of both companies have unanimously approved the merger agreement. After the completion of the transaction, Vector Group will become a wholly-owned subsidiary of Japan Tobacco.
This acquisition is considered to be in line with Japan Tobacco's tobacco business strategy. The acquisition is expected to increase a continuously growing and historically profitable business, and is expected to improve the company's return on investment in combustible tobacco. This transaction will greatly expand Japan Tobacco's business in the United States, which is the second largest tobacco market in terms of net sales and one of the most profitable tobacco markets in the world. In addition, through medium to long-term hard currency profit and cash flow, it is expected to strengthen Japan Tobacco's financial condition.
Morgan Stanley stated that its first impression of this transaction is slightly positive, as it allows Japan Tobacco to acquire a business with a relatively high gross margin and provides sales growth. This acquisition is expected to increase earnings per share starting from the first year of integration.
Analyst Haruka Miyake pointed out that the US tobacco market is experiencing a significant decline in demand, while the deep discount category has shown significant growth. However, Vector Group (VGR) has achieved market share and revenue growth by strategically gaining market share and increasing prices with multiple brands.
As for the impact on the industry, British American Tobacco and Imperial Brands PC are not expected to participate in and/or attempt to intervene in this transaction, as it could disrupt both companies' ability to repurchase stocks at their current pace. Miyake emphasized, 'In addition, both companies view strengthening through acquisitions as part of their capital allocation policies, with a focus on expanding into new categories and/or beyond nicotine business.'
Acquiring Vector Group will allow Japan Tobacco to achieve a market share of about 8% in the US market, as it will acquire two of the top ten cigarette brands in the United States.
Bloomberg intelligence analyst Duncan Fox said: "Although cigarette sales volume is declining at a double-digit rate, strong pricing will enable the company to generate a large amount of cash from investments in US products to reduce future risks."