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Imperial Tobacco to Buy Altadis for $22 Billion, Including Debt


Imperial Tobacco agreed to buy Franco-Spanish rival Altadis on Wednesday in a 16.2 billion euro ($22.4 billion) deal, strengthening its position as the world's fourth-largest cigarette group.

The deal price includes debt and will be funded by a rights issue of up to 5.4 billion pounds ($11 billion). Imperial's offer of 50 euros per share matches a proposed offer from
private equity firm CVC Capital Partners.

The move will join Imperial with the world's fifth-largest cigarette group Altadis and close the gap with the world's top three groups: Altria, British American Tobacco and Japan Tobacco. Imperial makes Lambert & Butler and Richmond cigarettes in Britain, and West and Davidoff in Germany, while Madrid-based Altadis makes Gauloises, Gitanes and Fortuna cigarettes and also Montecristo cigars.

Imperial's cash offer will give cost savings of around 300 million euros a year and be earnings enhancing in its the first full year.

"Imperial Tobacco and Altadis are a great strategic fit, which will consolidate our position as the world's fourth largest international tobacco company," said Imperial Chief Executive Gareth Davis in a statement.

Imperial is the number one cigarette player in Britain, and number two in Germany after its Reemstma deal in 2002 while Altadis in number two in France and Spain, and number one in
Morocco, and also the leading cigar maker in the world.

Altadis said its board would recommend the offer to shareholders unless it received a higher bid, and added since Imperial's initial approach in March, the Madrid-based group had
paid dividends to its shareholders of 1.1 euros a share.

Imperial shares rose 1.6% while Altadis gained 1.3%.

High Price

"The price looks high, but Imperial have an excellent record of making takeovers work and this is an essential deal to stay in touch with bigger groups," said one industry analyst.

The Imperial deal comes after Japan Tobacco bought Britain's Gallaher in an agreed 7.5 billion pound deal earlier this year and is expected to be the last big deal for a while as regulatory concerns are likely to prevent another one, analysts said.

Imperial is paying 14.2 times Altadis's 2006 EBITDA core earnings after Japan Tobacco paid 13 times Gallaher's 2005 EBITDA for the Benson & Hedges and Silk Cut cigarette maker.

Imperial is planning to dispose of non-core assets valued by Altadis at 650 million euros.

After the deal is completed, Altadis's chairman Jean-Dominique Comolli and Chief Executive Antonio Vazquez will join the Imperial board.

Imperial says the offer will be financed through new banking debt of 9.2 billion pounds, with a right issue of 5.4 billion pounds planned in the next 12 months.

Altadis, which also received a 50-euros-a-share bid proposal from private equity firm CVC Capital Partners, had rejected two previous lower indicative bids from Imperial.

Speculation of an Imperial-Altadis deal first emerged in December 2004, and on March 14, 2007, Imperial made a cash indicative bid for Altadis at 45 euros a share and increased
that to 47 euros in April.

Then private equity groups CVC Capital Partners and PAI Partners made their 50 euro bid on May 4 and four days later Altadis said it was opening its financial books to both rival parties.

But by May 31, PAI had withdrawn and CVC said it was to go ahead alone with the bid.

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