Picture: ISTOCK
Picture: ISTOCK

Tokyo — Japan Tobacco, which is on the hunt for overseas acquisitions to offset a shrinking home market, is working on several possible deals as it targets growth in Asian and other emerging markets, according to its new CEO on Wednesday.

Masamichi Terabatake said he saw the potential for deals in South America, Africa and the Middle East, in addition to Asia, where his company is already active, having spent about $2bn in 2017 on tobacco businesses in the Philippines and Indonesia.

"We have a long list and a short list [of potential targets]. There are various deals in the works," said Terabatake, who became CEO of the world’s fourth-largest tobacco company on January 1.

Japan Tobacco had an 8.4% share of the global cigarette market in 2016, Euromonitor International data show.

The former state monopoly is still one-third owned by the Japanese government.

It is accelerating its overseas mergers and acquisitions drive as it grapples with falling cigarette sales in Japan, where it commands 60% of the market.

Terabatake declined to comment on specific deals, including whether his company is interested in British rival Imperial Brands. Analysts said Japan Tobacco would probably be unable to buy Imperial’s entire business and would need to join forces with other buyers to clear antitrust hurdles, given Imperial’s big market presence in the UK and other countries.

But Terabatake said "very large deals are likely to face antitrust issues.

"I think it’s very difficult to successfully complete deals we cannot do alone."

Japan Tobacco has forecast 92-billion cigarette sales in Japan for 2017, down 13.4% from a year ago, as a growing number of smokers are switching to heat-not-burn (HNB) tobacco.

Japan has become a fertile market for HNB products as the country’s regulations effectively ban e-cigarettes that use nicotine-laced liquid.

Philip Morris is ahead in the segment with its iQOS device, which was launched in Japan in 2014 and expanded nationwide in April 2016.

Japan Tobacco, which rolled out its Ploom Tech smokeless tobacco product in central Tokyo in June 2017 after production delays, is now trying to catch up with IQOS and British American Tobacco’s glo.

Terabatake said his company was trying to resolve supply bottlenecks by ramping up production capacity. "We expect HNB products to reach 30% of Japan’s total tobacco market in 2020 and we need to take actions accordingly."

The CEO also said Japan Tobacco was already developing other new smokeless products.

He declined to comment on the timing of new product launches but said they were "a lot nearer" than five years from now.

Reuters

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