JT rumored to be in talks to buy RAI brand assets

Japan Tobacco Inc. is in talks to buy cigarette assets from Reynolds American Inc, according to a Bloomberg story citing ‘people familiar with the talks’.

The story, by Ed Hammond, Aaron Kirchfeld and Ruth David, said that JTI might acquire assets worth about $5 billion, including some in the Natural American Spirit (NAS) brand that is manufactured by RAI’s Santa Fe operating company.

Commenting on the story, Bonnie Herzog, managing director of Beverage, Tobacco & Convenience Store Research at Wells Fargo Securities, said that, based on Wells Fargo’s sum-of-the-parts analysis, it believed Santa Fe was worth $7.6 billion.

‘While we aren’t sure whether RAI is indeed seriously considering selling some or all of Santa Fe assets at this point or which assets are potentially being considered, regardless we believe this is a win-win scenario for RAI shareholders,’ she said.

‘We believe if the speculation proves true, any transaction would monetize an asset that we have long believed to be underappreciated and undervalued by the market. Alternatively, if RAI retains Santa Fe, we believe the market will give proper credit for the true value of the NAS brand especially as the brand continues to grow.’

The Bloomberg story is at: http://www.bloomberg.com/news/articles/2015-09-24/japan-tobacco-said-in-talks-to-buy-5-billion-reynolds-assets