Originally created 03/15/05

Buyout boosts market share

NEW YORK - Altria Group Inc.'s Philip Morris International division has made a $5 billion offer to acquire Indonesia's third-largest cigarette producer, boosting its market share in a country of heavy smoking as revenues in other parts of the world shrink on health concerns.

Philip Morris said Monday that it reached agreements to buy a 40 percent stake in PT Hanjaya Mandala Sampoerna from its principal shareholders for a total of $2 billion in cash.

It will make a tender offer for the remaining stock at 10,600 rupiah ($1.13 apiece) - a 20 percent premium to Sampoerna's closing price of 8,850 rupiah (95 cents) on Thursday.

The overall deal values the Indonesian company at 46.5 trillion rupiah ($5 billion). Philip Morris also will assume about 1.5 trillion rupiah ($160 million) in debt, Altria's PT Philip Morris Indonesia unit said in a statement.

In a separate matter, Altria's Philip Morris USA division said Monday it was awarded $173 million in damages after a U.S. District Court found Switzerland-based Internet cigarette retailer Otamedia had infringed on Philip Morris' trademarks.

"We are pleased with the court's decision," said Virginia Murphy, the senior vice president of compliance and brand integrity at Philip Morris USA. "We believe it sends a clear message that the law imposes significant penalties on those who infringe our intellectual property rights through unlawful Internet cigarette sales."

With the buyout of Sampoerna, Philip Morris International would become Indonesia's second-largest cigarette maker, with 23.5 percent of the market, and would increase its global market share by close to 1 point, Altria Chairman and Chief Executive Louis C. Camilleri said on a conference call.

He added that the transaction will moderately benefit Altria's earnings in 2005. Philip Morris' U.S. and international tobacco businesses make it the largest publicly traded tobacco company in the world.

Richmond, Va.-based Philip Morris' bid highlights recent efforts to expand its presence overseas as government bans and increased awareness of the health risks of smoking have curbed tobacco use in mature markets - the United States and Europe.

"The market in the United States is not growing at the same rate it used to be. There are beginning to be smoking bans in Western Europe, too," Argus Research's Erin Smith said. "Some of the less-developed countries don't have that threat."

Last year, Philip Morris' domestic tobacco sales rose a mere 3 percent to $17.51 billion; its international sales, on the other hand, billowed 18 percent to $39.54 billion.


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