Japan Tobacco acquires fourth largest U.S. cigarette maker for $2.4 billion, boosting market share to 8%

Japan Tobacco acquires fourth largest U.S. cigarette maker for $2.4 billion, boosting market share to 8%

Japan Tobacco Group has agreed to acquire Vector Group Ltd., the fourth-largest cigarette maker in the United States, for $2.4 billion to fill the vacancy in the Russian market. This move will increase its share of the US market from 2.3% to about 8% and provide financial support for its further investment in heated tobacco products.

According to BNN Bloomberg on August 21, Japan Tobacco Group (JT Group) agreed to acquire US cigarette maker Vector Group Ltd. for about $2.4 billion to expand its business in the United States, a move to change its strategy after the war hindered its development in Russia.

According to a statement on Wednesday (21st), the company plans to acquire Miami-based Vector Group Ltd. for $15 per share. The acquisition price is a 7.2% premium to Vector's closing price in New York on Tuesday (20th).

According to Eddy Pirard, CEO of JT International, the deal will increase Japan Tobacco's market share in the United States from 2.3% to about 8%, and allow it to own two of the top ten cigarette brands in the United States. The United States is the most profitable market for tobacco companies in the world.

JTI, which owns brands such as Mevius, has been expanding internationally since it acquired the non-U.S. business of R.J. Reynolds in 1999. As cigarette sales have declined in Japan and other developed markets, the company has been looking to emerging markets while investing in alternative products and seeking larger expansions.

"Despite cigarette volumes falling at a double-digit rate, strong pricing power will enable the company to generate significant cash flow for future investments in low-risk products in the U.S.," said Duncan Fox, an analyst at Bloomberg Intelligence.

In 2017, JTI acquired Indonesian tartrate maker Karyadibya Mahardhika and in 2018 acquired the tobacco business of Bangladeshi company Akij Group.

Growth plans in Russia were interrupted by the 2022 invasion of Ukraine, forcing JTI to stop investing in that market. Further expansion into the U.S., the company's second-largest tobacco market, will help fill some of the gap.

JTI said it also plans to use cash flow from the Vector deal to invest in products including heated tobacco.

JTI is working with Altria Group to promote its Ploom heated tobacco products in the U.S. and said earlier this year it plans to increase spending in the category by 50% and expand into new markets.

Vector is the fourth-largest tobacco company in the U.S. and owns Liggett brands such as Eagle20s and Liggett Select.

Its board of directors unanimously supports the sale, according to the statement.

Vector shares rose 7.6% to $15.05 in pre-market trading in New York. The stock has risen 24% this year as of Tuesday (20th).