Japan Tobacco cuts full-year profit forecast

Japan Tobacco cuts full-year profit forecast

By Mariko Sanchanta in Tokyo

Published: February 9 2007 23:28 | Last updated: February 9 2007 23:28

Japan Tobacco on Friday cut its full-year profit forecast due to costs related to its $14.7bn acquisition of Gallaher, the UK tobacco company.

The world’s third largest cigarette company said it expected full-year profits of Y202bn for the year ending March 31 down from a previously forecast Y206bn.

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The company said the costs were related to currency hedging and a syndication of the bridge loan to fund its acquisition of Gallaher. Japan Tobacco will finance the deal using Y700bn in cash and a Y1,200bn bridge loan provided by Merrill Lynch, its financial adviser.

The company also reduced its sales forecast to Y4,740bn from Y4,770bn, due to a tax rise on cigarettes that has dampened demand for the product. Japan Tobacco has increased the retail price of a pack of cigarettes by as much as Y30.

The moves hit the company’s shares, which closed down 3.7 per cent to Y555,000 on Friday. Japan Tobacco’s shares have risen 48 per cent this year compared with a 3.1 per cent rise in the benchmark Topix index.

Rating agencies Standard & Poor’s and Moody’s put Japan Tobacco’s “AA-” and “AA2” long-term credit ratings on review for possible downgrade, citing the company’s debt load and litigation risks associated with purchasing Gallaher.

Japan Tobacco’s acquisition of Gallaher, which was agreed in December, marks the biggest overseas acquisition by a Japanese company. Last month, Japan Tobacco began buying shares of Gallaher to fend off counter bids – it holds an 8 per cent stake in the UK tobacco company now.

Gallaher shareholders will convene on March 9 for an extraordinary general meeting, where they are expected to approve the takeover. The Japanese cigarette maker said it expected the acquisition to be completed by April 18.

The acquisition exceeds NTT DoCoMo’s $9.8bn takeover of AT&T Wireless in 2000, and Japan Tobacco’s own Y940bn purchase of RJ Reynolds’ non-US operations in 1999.

Japan Tobacco is 50 per cent owned by the Japanese government and controls about 65 per cent of the domestic tobacco market.

Copyright The Financial Times Limited 2007

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