JT Agrees to Buy Gallaher, More Japanese Firms Seeking Overseas M&A

Japan Tobacco's just-confirmed bid for Gallaher, valued at £7.5b ($14.8b), or £9.75b ($19.2b) including debt, is part of a growing trend among Japanese firms looking overseas for acquisition targets, after a long period of silence post Nikkei bubble bursting. Reuters quotes a Japan-based analyst who asked to remain anonymous, saying, "I'm sure JT does not want to pay this much, but it has probably judged that it would be better to pay than to lose Gallaher to another company." JT will use its cash and borrow from Merrill Lynch, its advisor in the deal, to fund the acquisition. This is the largest overseas deal ever by a Japanese firm, topping NTT DoCoMo's $9.8b stake in AT&T Wireless purchased in Nov. '00, and bigger than the $7.8b paid by JT in Mar. '99 for RJ Reynolds Intl. The Wall Street Journal reports that year to date, Japanese firms have initiated 294 foreign acquisitions valued at $18.1b, more than calendar year '05, and double '04, but still far from the 429 deals in '90 worth $25.3b.
• Sources: Forbes, Reuters, The Wall Street Journal
• Related commentary: Gallaher's Shares on Fire Following Japan Tobacco Bid, UBS: "We Are Very Bullish on Japan", Bridgestone and Bandag to Merge, Shares Burn Rubber, Nomura's Agreement to Buy Instinet from Silver Lake a Win-Win
• Potentially impacted stocks and ETFs: Gallaher (GLH), Japan Tobacco (Tokyo: 2914). Competitors: Altria (MO), British American Tobacco (BTI)

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