Lausanne, Switzerland based cigarette manufacturer Philip Morris International (PMI) today made a friendly USD 2-billion takeover offer for all of the outstanding common shares of Canadian cigarette maker Rothmans.

The agreement and related offer have the full support of the board of directors of Rothmans, PMI says.
Rothmans’ sole holding is a 60 per cent interest in Rothmans, Benson & Hedges (RBH). The remaining 40 per cent interest in RBH is currently owned by PMI and, as a result of this transaction, RBH will become wholly owned by PMI. PMI and Rothmans have been joint shareholders of RBH since 1986.
PMI agreed to make the offer following Rothmans’ and RBH’s finalisation of a settlement with the government of Canada and all ten provinces over cigarette smuggling charges. RBH had pleaded guilty to aiding in the cross-border smuggling of contraband cigarettes between 1898 and 1994. Together with its larger rival Imperial Tobacco Canada RBH agreed to pay more than USD 1.1 billion in penalties and fines.
The takeover marks PMI’s first major deal since it was spun off from Altria in March.
Some tobacco industry observers were puzzled by Philip Morris's desire to gain a bigger presence in Canada, where demand is much more mature than in the fast-growing markets in Eastern Europe and Asia that the company has been chasing. In announcing the deal, PMI’s chief executive Louis C. Camilleri said the acquisition is a good fit because it consolidates the company's presence in a market "that we deem financially attractive and of strategic importance going forward”.
Philip Morris International noted Rothmans is the only major cigarette maker to show growth in Canada, with its share reaching 33 per cent in 2007. The company has been particularly strong in Canada's discount cigarette category, which grew to 54 per cent of the market by 2007 from only 16 per cent in 2003. With brands including Accord, Number 7, Canadian Classics and Mark Ten, Rothmans is the leader in the discount cigarette category, with 47 per cent market share. Its premium brands, including Benson & Hedges, Craven A, Rothmans and Belmont, give it a 17 per cent share of that segment of the market in Canada. (pi)