November 21, 2017 / 10:56 AM / a year ago

Japan Tobacco to actively pursue M&A opportunities -CEO designate

TOKYO, Nov 21 (Reuters) - Japan Tobacco Inc will seek acquisition opportunities overseas, said Masamichi Terabatake who is slated to become its CEO in January, to secure growth as the rise of vaping rivals snuffs out the company’s cigarette sales at home.

“If there are good deals, we would like to actively pursue them, even by taking risks. The scale does not matter,” Terabatake told reporters on Tuesday, after his promotion to the CEO position was announced.

Shares of Imperial Brands, which many see as a potential acquisition target for Japan Tobacco, rose 3.4 percent following Terabatake’s comments.

“We would argue a bid for Imperial becomes more feasible under the new leadership with the new CEO saying JT is actively seeking M&A opportunities ‘regardless of size’,” Jefferies analyst Owen Bennett wrote in a note to clients.

Officials at Imperial, the maker of the Davidoff and Golden Virginia brands, declined to comment.

Terabatake did not give any details on M&A targets.

The 51-year-old executive, who will replace Mitsuomi Koizumi as CEO, is currently deputy CEO at JT International, a Geneva-based company that is headquarters for Japan Tobacco’s overseas operations.

Terabatake has spent more than a decade in the company’s international tobacco business. As a young official, he worked on Japan Tobacco’s $7.8 billion acquisition of the non-U.S. tobacco business of RJR Nabisco Inc in 1999.

“There are still many regions we have not entered. There are many markets left for cigarette business to grow,” he said.

At home, the company’s cigarette sales have been hit with more smokers quitting than expected and the negative impact of heat-not-burn (HNB) cigarette alternatives.

It has forecast 92 billion cigarette sales in Japan for 2017, down 13.4 percent from a year ago. That would be 1 billion less than what it had projected in August and 4 billion below an estimate given at the start of year.

Despite commanding over 60 percent of Japan’s cigarette market, the former state monopoly has been caught on the wrong side of the rising HNB popularity and has lagged in its own backyard versus global rival Philip Morris International.

Quick to see that the number of smokers was shrinking in an era of increasing health awareness, Philip Morris started selling its IQOS HNB product, a tobacco vaping device, in Japan in 2014 and expanded nationwide in April last year.

But Japan Tobacco rolled out its Ploom Tech battery-powered smokeless tobacco product in central Tokyo only in July this year after production delays.

Terabatake said it was still too early for any company to solidify its lead in this category.

“Tobacco vapour war has just begun,” he said. (Reporting by Taiga Uranaka; Additional reporting by Martinne Geller in LONDON; Editing by Himani Sarkar)

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