U.S. cigarette giant acquire Sampoerna
Rendi A. Witular, The Jakarta Post, Jakarta
The Sampoerna family decided to relinquish control over PT Hanjaya Mandala Sampoerna, the country's third largest cigarette maker, to the world's largest cigarette producer Philip Morris International Inc.
Even after Monday's announcement, it was still unclear why the family decided to end its 92-year tradition in the cigarette industry by handing over its flagship company -- paving the way for Philip Morris to initiate the biggest acquisition deal in Indonesian corporate history.
Philip Morris, the international tobacco unit of U.S. consumer-goods giant Altria Group Inc., announced it had paid a total of Rp 48 trillion (US$5.2 billion) to buy Sampoerna.
The deal will include Sampoerna's debt, which totals Rp 1.5 trillion.
Philip Morris, producer of Marlboro and L&M cigarettes, said it had entered into agreements to acquire a 40 percent stake in publicly listed Sampoerna from a number of the company's principal shareholders, including those owned by the founding family.
The shares will be priced at Rp 10,600 per share, or a total of Rp 18.6 trillion.
As for the remaining shares, including those owned by the public, Philip Morris will make a tender offer at a premium price of 20 percent higher than the closing price of Sampoerna's shares on Thursday, which ended at Rp 8,850.
The tender is expected to be completed within 90 days.
"Investment in Sampoerna will significantly expand our business in the world's fifth largest and growing cigarette market," Philip Morris Asia Pacific President Matteo Pellegrini told reporters. "The action we are taking reflects our decision to enter the large and profitable clove-cigarette segment here."
Indonesia is the world's fifth-largest cigarette market after China, the United States, Japan and Russia.
He added that there was a possibility for Sampoerna to become a non-listed company if all the shareholders agreed to the offering.
However, such conditions were deemed unfavorable by Philip Morris, and preferred the company to remain listed, said Pellegrini.
With the founding family likely to lose control of the company, Philip Morris has hinted that it would bring in a new board of management and commissioners, while pledging to appoint Putera Sampoerna -- the grandson of founder Liem Seeng Tee -- as an advisor.
"We are going to nominate the new board of directors, including the chief executive officer (CEO) after the transaction is completed. While for Putera, he will still stay in the company as an advisor," said Pellegrini.
Sampoerna's current CEO is the 27-year-old Michael Joseph Sampoerna, the eldest son of Putera. The World Health Organization notes that tobacco use is still expanding, especially in developing countries where around 84 percent of the smokers live. Tobacco use kills 4.9 million people each year, and this toll is expected to double in the next 20 years. At current rates, the total number of tobacco users is expected to rise to 1.7 billion by 2025 from 1.3 billion now.
Indonesia -- a country with 141 million smokers, of which 92 percent prefer kretek (clove) cigarettes -- still allows smoking in most public places.
Last year, cigarette consumption here reached some 200 billion sticks with publicly listed PT Gudang Garam and non-listed PT Djarum -- the country's largest and second largest cigarette producers respectively -- accounting for some 80 percent of the market.
Sampoerna controls 19.4 percent of the market share, with its top-selling brands Dji Sam Soe and A Mild.
Sampoerna shares ended higher by 18 percent to a record Rp 10,450 rupiah on the Jakarta Stock Exchange after the announcement.