PMI will pay Rs 666.89 per share totaling Rs 20.62 Billion

Jan 29 - Feb 04, 2007

Switzerland based Philip Morris International (PMI), that held 15 per cent share of the global cigarette market in 2005, will acquire an additional 50.21 per cent stake in Lakson Tobacco, Pakistan's second largest tobacco company. A press release issued from its head office in Lusanne on January 19, PMI, which already holds 40 per cent stake in Lakson Tobacco, put the value of the transaction at $ 338.9 million or Rs 20.62 billion.

PMI said that it entered into an agreement to acquire additional stake an additional 50.21% stake in Pakistan cigarette manufacturer Lakson Tobacco Company Limited (Lakson Tobacco) from a number of Lakson Tobacco's principal shareholders for PKR 666.89 (USD 10.96) per share. The transaction will push PMI's stake to approximately 90 per cent.

The announcement explained the unusually high and active movements of Lakson's shares at the Karachi Stock Exchange, that nobody seemed to notice primarily because it is not much of a liquid scrip. During 13 trading days between Wednesday January 3 and Friday January 19 Lakson's share prices at the KSE constantly increased every trading except January 11. The price of the share that opened at Rs 370 on January 3 closed at Rs 542.85 on Friday January 19 posting a gain of Rs 172.85 equal to a cool 46 per cent profit. A total of 90,700 shares of Lakson Tobacco were traded on the KSE for 13 trading days till Friday December 19.

The deal is going to make the investors holding the remaining 10 per cent shares fairly rich because PMI will now proceed to make a public tender offer for all the remaining shares at the same price per share i.e. Rs 666.89. It would also push the value of Lakson Tobacco a Rs 41.07 billion ($ 674.9 million) company. PMI will pay cash for all shares tendered and expects the tender offer to be completed within 90 days subject to regulatory reviews and approvals.

Lakson Tobacco is Pakistan 's second largest tobacco company, with an estimated cigarette volume of 29.8 billion units in fiscal year ending 30 June 2006 , generating net revenues of approximately USD 160.5 million. The company held an estimated 47 per cent share in fiscal year 2006 of the growing 63 billion-unit Pakistan cigarette market. Morven Gold is the leading brand in the market with an estimated 37% market share, complemented by Diplomat and Royals. Additionally, Lakson Tobacco is the licensed manufacturer of PMI's Marlboro and Red & White brands in Pakistan . Lakson Tobacco's core brands include Morven Gold and Diplomat while Red & White and Marlboro, manufactured under licence from PMI, complement its portfolio. Lakson Tobacco operates four cigarette manufacturing facilities in Pakistan .

PMI expects that its additional investment in Lakson would give it a significant presence in Pakistan which is one of the top twenty cigarette markets of the world.

André Calantzopoulos, President and Chief Executive Officer of PMI, has said that "Lakson Tobacco is a very well established and managed company with a strong brand portfolio, including the market leader Morven Gold. This transaction provides PMI with an excellent opportunity to further develop Lakson Tobacco's brands and to deploy its international portfolio in Pakistan ."

The Chairman and Chief Executive Officer of Lakson Tobacco, Iqbal Ali Lakhani has called the agreement "an excellent development for our stakeholders, including shareholders and employees. PMI is well known as a successful manufacturer and marketer of quality tobacco products. This substantial foreign investment is evidence of growing investor confidence in Pakistan 's vibrant economy."

Matteo Pellegrini, President for the PMI Western Asia region, has said that "We have a long standing relationship with Lakson Tobacco which has benefited both companies, and we have high regard for its management, people and culture," said We look forward to continuing to work with the management and employees of Lakson Tobacco to further solidify its market position and ensure the continued success of the company in Pakistan."

As mentioned above PMI held a 15% share of the international cigarette market in 2005. Its brands, led by Marlboro and L&M, are sold in over 160 countries around the world. Philip Morris International is an operating company of Altria Group, Inc. In 2005 PMI's net revenues stood at $ 45.3 billion while the income of the companies operated by it was $ 7.8 billion.

The buying out of majority shares from principal shareholders by PMI will bring in substantial foreign direct investment in to the country. This is the financial high of the deal that has a social and human health related side. The fact that major international cigarette manufacturer and seller like PMI sees Pakistan a country full of potential is good to a point because the developed world has been discouraging smoking through legislation and laws. Federal and provincial laws in America prohibits smoking in the public areas and government buildings, restaurants, during air travel and so on and so forth. If smoking is not alright prohibited in certain areas the smokers are allowed only to smoke within a separate area to prevent no-smokers from the harmful effects of second-hand smoke.

According to data based on cigarette sales tax figures compiled by National Association of Attorney General, Americans smoked fewer cigarettes in 2005 which was lowest than any time since 1951- when America's population was half of what it is today. The data also showed that cigarette sales in the USA dropped 4.2 percent in 2005 alone and 20 percent since 1998.

The data was collected by attorneys-general of the states of USA who felt that they "had an interest in proclaiming progress in the war on smoking". The AGs attributed the substantial decline in smoking to the $246 billion settlement the states reached with the tobacco industry in 1998. - and it's possible that the study didn't capture some cigarette sales, such as those conducted over the Internet or through the black market.

The data collected by American Attorneys General findings are reinforced by other studies concluding that fewer Americans are smoking and that the ones who do are smoking less. For instance, The Centres for Disease Control and Prevention reported in November 2005 that smoking rate among adult Americans had been falling steadily, from 25 per cent in 1993 to 20.9 per cent in 2004.