JT’s share price drops as acquisition confirmed

Japan Tobacco Inc.’s share price fell to its lowest level in six months after the company agreed to pay about US$5 billion for the international rights to the Natural American Spirit cigarette brand, according to a story by Monami Yui and Sam Chambers for Bloomberg News.

Under the deal JT will buy from Reynolds American Inc. the international rights to the Natural American Spirit brand name and associated trademarks, along with the international companies that distribute and market the brand outside the US. Natural American Spirit is sold in the US by RAI’s subsidiary, Santa Fe.

JT is offering to pay RAI about 22 times more than the pretax earnings multiple of tobacco deals from the past five years. The shares dropped by 6.7 percent to 3,695 yen by the close of trading in Tokyo, to the lowest level since March 20.

“We think the acquisition price can be viewed as overpriced,” Satoshi Fujiwara, a Tokyo-based analyst at Nomura, wrote in a note to clients Wednesday.

But Fujiwara added that the price “might be able to be justified over the medium term” due to factors such as improved operating margins if in-house production is launched.

The full story is at: http://www.bloomberg.com/news/articles/2015-09-30/japan-tobacco-plunges-on-5-billion-reynolds-asset-deal.