U.S. cigarette giant acquire Sampoerna

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.