Philip Morris Bids $5 Bln for Sampoerna

Philip Morris, the tobacco arm of Altria Group, announced a deal to buy a 40 percent stake and plans to tender for the remaining shares at a 20 percent premium to their closing price on March 10. Shares of Sampoerna shares rose 17 percent in early trading.

Philip Morris, which is paying cash and expects to complete the tender in 90 days, put the total value of the deal at $5.2 billion, including $160 million of debt.

The company, the maker of Marlboro cigarettes, expected the transaction to contribute modestly to Altria's earnings this year.

"Our investment in Sampoerna is a great opportunity to significantly expand our business in the world's fifth-largest, and growing cigarette market," said Andre Calantzopoulos, chief executive of Philip Morris International, in a statement.

Sampoerna, which has almost 20 percent of the Indonesian market with clove-cigarette brands like Dji Sam Soe and A Mild, had an operating income of $360 million on revenues of $1 billion in 2004, Philip Morris said. Cigarettes made with tobacco and cloves, called kreteks, account for more than 90 percent of the market.

GROWTH OPPORTUNITY
Indonesia, the fifth-largest tobacco market after China, the United States, Japan and Russia, is a prime growth target for Philip Morris International, said Manny Goldman, a U.S. consumer products industry consultant.

"The Third World environment typically presents a lot of opportunity for growth," he said.

Growth in the U.S. tobacco industry is slowing because the market is mature as government restrictions against smoking are put into place. In addition, prices for cigarettes are rising due to higher taxes and payments tobacco companies agreed to make to U.S. states as part of an agreement in a federal and state case against the tobacco industry.

The deal values Sampoerna at 20 times expected 2005 earnings, a premium to the ratio of 15 for PT Gudang Garam Tbk, the country's largest tobacco company. Unlisted PT Djarum is the second-biggest producer.

As for the price, Goldman noted that Altria's time-frame for deciding if the investment is successful could be much longer than in a typical acquisition.

"When you are Philip Morris, and you are going into a country like Indonesia, you have a very long time horizon," he said.

Philip Morris is bidding for outstanding shares of Sampoerna at 10,600 rupiah a share, a 20 percent premium from the Thursday closing price of 8,850 rupiah. Friday was a public holiday in Indonesia.

The news sent Sampoerna shares up 17 percent to 10,350 rupiah. PT Gudang Garam Tbk gained 7.36 percent to 17,500 rupiah in early trading on Monday, helping the overall market rise 0.8 percent to 1,116.42 points.