Philip Morris punts on Pakistan potential

The tobacco company commits up to $405 million to consolidate its position in Pakistan.
Philip Morris International is paying $338.9 million to hike its stake in its Pakistan subsidiary, Lakson Tobacco Company, from 40% to 90.21%. Including the tender offer to minority shareholders precipitated by this move, Philip Morris will pay up to $404.9 million to consolidate its ownership of Lakson.

Philip Morris has entered an agreement to acquire an additional 50.21% stake from principal shareholders, the Lakhani family and others. Philip Morris will then make a public, tender offer to all remaining shareholders at the same price. At the agreed price, Philip Morris has estimated the value of 100% of Lakson Tobacco at $675 million.

Lakson Tobacco, which was founded in 1971, is PakistanÆs second largest cigarette manufacturer. For the fiscal year ended June 30, 2006 it had revenues of around $160.5 million on which it earned an Ebitda of $46.1 million. Lakson has an estimated 47% share of the growing 63 billion unit Pakistan cigarette market and its brand Morven Gold is the leading brand in the country with an estimated 37% market share. Lakson is also the licensed manufacturer of the Marlboro and Red & White brands in Pakistan.

AndrT Calantzopoulos, president and chief executive officer of Philip Morris International says: ôOur additional investment in Lakson Tobacco gives us a significant presence in one of the top 20 cigarette markets in the world. This transaction provides us with an excellent opportunity to further develop Lakson TobaccoÆs brands and to deploy our international portfolio in Pakistan.ö

Iqbal Ali Lakhani, chairman and chief executive of Lakson Tobacco, described the investment as ôevidence of growing investor confidence in PakistanÆs vibrant economyö. The Lakhani family has interests in businesses including fast moving consumer goods, paper, textiles and are the Colgate Palmolive, Kraft Foods, Tetley and McDonalds partners in the country. The group generates sales revenue of around $625 million annually.

Philip Morris International had a 15% share of the international cigarette market in 2005 with sales of $45.3 billion derived from 160 countries worldwide. Emerging markets such as Pakistan are critical to the continued growth of tobacco businesses.
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