TOKYO: Japan Tobacco Inc. is making one of the most expensive deals in the tobacco world in a bet that more smokers, especially Japanese ones, will get hooked on Natural American Spirit cigarettes. It’s already lost twice the $5 billion it offered through the decline in the value of its shares.
About 1.2 trillion yen ($10 billion) has been wiped out from JT’s market value since Monday’s open, after Bloomberg reported Sept. 25 that Asia’s largest listed tobacco company would agree to buy international rights to Reynolds American Inc.’s Natural American Spirit brand. JT confirmed the deal late Tuesday, at about 286 times the target’s pretax profit.
To start making a decent return, JT will need to quintuple the brand’s sales in the next five years, according to Nomura’s Tokyo-based analyst Satoshi Fujiwara, something he thinks the former Japanese monopoly might pull off.
“Natural American Spirit is an unusual brand that’s growing because of its uniqueness,” Fujiwara said by telephone. “With JT’s sales and marketing expertise, there’s potential that sales volume for NAS products would further increase even in the shrinking markets such as Japan and Europe.”
The market has been skeptical. Shares of JT have plunged 14 percent in Tokyo trading since Monday’s open, closing at 3,573 yen each on Thursday, while the benchmark Topix rose 2.2 percent.
