Japan Tobacco says government will sell stake in future..

November 12, 2009 - Japan Tobacco Inc. (JTI - is the international division of Japan Tobacco Inc.) said the country’s government will “eventually” sell its stake in the maker of Benson & Hedges and Silk Cut cigarettes in Britain (England, United Kingdom) as Prime Minister Yukio Hatoyama may want to raise funds to stem rising public debt.

Japan Tobacco also operates in foods, pharmaceuticals, agribusiness, engineering, and real estate. Japan Tobacco completed the largest ever foreign takeover in Japanese history through acquisition of Gallaher Group plc in April 2007. JT International (JTI), acquired in 1999 from R.J. Reynolds, is an operating division of Japan Tobacco Inc., handling the international production, marketing and sales of the group's cigarette brands. It sells Camel, Salem, and Winston brands outside the USA. (Japan Tobacco)

“What we hear is that they think about privatization, which includes us,” Munetaka Takeda, JT's executive deputy president, told a briefing in London yesterday. “So, eventually it’s likely to happen.”

Japan’s government owns 50.01 percent of the cigarette maker, having sold stock three times since the company was founded in 1985. Shares of Japan Tobacco, the world’s third- largest publicly traded cigarette maker, have fallen 14 percent since Hatoyama came to office on September 16, as the government debates whether to raise taxes on cigarettes.

“In the future, privatization has to be done,” said Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. in Tokyo. Still, “the government wants to keep some control over Japan Tobacco to raise taxes.”

Most recently, the state sold a 14.5 percent stake in June 2004. Public debt in Japan is approaching twice the size of gross domestic product, according to the Organization for Economic Cooperation and Development. Japan Tobacco shares fell 1 percent to 249,300 yen at the 3 p.m. close on the Tokyo Stock Exchange.

“The government will look cautiously at the stock market so it’s unlikely there’ll be a sale overnight or tomorrow, nor will they dispose of everything at once,” JT's Takeda said. Takeda’s comments come after the Hatoyama administration’s decision last month to shelve plans to sell shares of Japan Post Holdings Co.

Hatoyama and other officials in his administration have said the government may raise taxes on tobacco to discourage smoking. “We will stick to our policy to tax things that are bad for health,” Vice Finance Minister Naoki Minezaki said on NHK Television on November 8.

The smoking rate among men in Japan dropped to 36.8 percent in 2008 from 46.8 percent in 2003, the health ministry said this week. About 9.1 percent of women smoked last year, compared with 11.3 percent in 2003, the report said.

The average price of a pack of cigarettes in Japan is 300 yen ($3.30), including 174.9 yen in tax. The health ministry estimates the smoking rate among men may fall to as low as 27.1 percent if the price is raised to 500 yen. The country gets about 1 trillion yen in tax revenue each year from tobacco.

Japan Tobacco acquired RJR Nabisco’s international businesses, including the Camel and Winston brands, in 1999 and the U.K.’s Gallaher Group Ltd. in 2007.

International tobacco operations accounted for $3.4 billion, or about half, of the group’s 2008 earnings before interest, taxes, depreciation and amortization.
To offset higher tobacco leaf costs, Japan Tobacco plans to raise U.K. prices from November 24, adding 10 pence (17 cents) to a pack of Camels, U.K. Managing Director Daniel Torras said.

“Leaf prices are staying at higher levels now,” said Takeda. “It’s very unlikely to assume leaf costs will dramatically fall in 2010.”

Reference: Japan Tobacco Says State Will Sell Stake ‘Eventually’ (Update1) by Jeroen Molenaar and Naoko Fujimura, Bloomberg.com, 11/12/2009.

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