Imperial Buys U.S.-based Commonwealth Brands

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Imperial Buys U.S.-based Commonwealth Brands

LONDON -- Imperial Tobacco acquired Commonwealth Brands, the number four cigarette maker in the U.S., for $1.9 billion in an effort to enter the U.S. tobacco market, reported the Financial Times.

Imperial Tobacco, the world's number four cigarette maker, acquired Commonwealth from its parent, Houchens Industries. Imperial was exploring strategies to break into the U.S. market, but had ruled out acquisitions to avoid association with potential lawsuits, chief executive Gareth Davis told Bloomberg News in October.

The global tobacco industry has undergone international consolidation as a result of lower sales and widening bans on smoking. Imperial estimated that the number of duty-paid cigarettes sold in its biggest market, the United Kingdom, decreased 3 to 4 percent in the 2005 fiscal year, and as a result, began considering expanding into new markets. In August, Imperial paid $703 million for the trademark of Davidoff cigarettes. Imperial was expected to make a bid on France's Altadis, but has not made a public bid to date, the report stated.

In April, Reynolds American bought Conwood, a smokeless tobacco company, for $3.5 billion from the Pritzker family. Altria recently announced its spin-off of Kraft Foods to focus on its tobacco brand, Philip Morris. The plan launched speculation that Altria would look to acquisitions to build its core business, with Imperial as a potential candidate for purchase, the report stated.

Imperial has been open about its plans to jump into the U.S. tobacco ring. "(The U.S.) is a highly attractive market with highly-attractive margins," Davis told Bloomberg News in October. U.S. smokers consume 7 percent of the world's cigarettes and account for 30 percent of the industry's profit, he noted, and legal problems in the states have become "significantly less" than recent years, he continued.

"It all points to a more settled landscape in the United States," Davis said.

With Imperial's entrance, American tobacco will face the first major competitor in years, Bloomberg stated.

According to Hoover's Handbook, Imperial Tobacco was founded in 1902 when a number of U.K. tobacco companies banded together against American tobacco's entry into their market. Eventually, Imperial and American tobacco agreed to stay out of each other's way. Imperial sells cigarettes, cigar, roll-your-own tobacco and snuff in more than 130 countries. Robert Burton Associates Ltd., the U.S. subsidiary of Imperial Tobacco, manufactures and distributes brands of rolling papers, cigarette tubes and tobacco accessories under the name E-Z Wider, Joker, Premier Supermastic, Rizla, El Rey, Club, Rayo, Escort and Canuma.