A global giant, Phillip Morris International (PM) grows larger…
New York, July 10, 2009 – Philip Morris International Inc. [NYSE/Euronext Paris: PM] (PMI) announced today that it has entered into an agreement to purchase 100% of the shares of privately owned Colombian cigarette manufacturer, Productora Tabacalera de Colombia, Protabaco Ltda. (Protabaco), for $452 million.
Protabaco is the second largest tobacco company in Colombia, with an estimated 2008 volume of 6.1 billion cigarettes and an approximate market share of 31.8%. The Company reported net revenues of approximately $107.6 million in 2008. Its leading brands include Mustang, Premier and President.
“We are extremely pleased to reach this agreement with Protabaco in order to continue to build our business in this important and strategic market,” said Miroslaw Zielinski, President of PMI’s Latin America and Canada Region. “This strategically compelling transaction will provide PMI with an excellent opportunity to further develop Protabaco’s strong brand portfolio and reflects the continuing confidence we have in the future of Colombia, its economy and the tobacco industry.”
In 2005, PMI acquired Compañía Colombiana de Tabaco S.A. (Coltabaco). Since then, PMI has continued to invest in Coltabaco, its employees and its infrastructure, as well as in social and economic programs in Colombia, including investments in the tobacco growing sector.
“This is an excellent development for Protabaco and our employees,” said Jaime Delgado, General Manager Protabaco. “PMI is well known as a successful manufacturer and marketer of quality tobacco products and we believe they are in an excellent position to continue to develop our strong brands and strong organization.”
The transaction, which is subject to competition authority approval and final confirmatory due diligence, is projected to be immediately marginally accretive to PMI’s earnings per share and is expected to close within the next six months.
This is one of the very few investments I am comfortable buying and holding for a VERY LONG time….many years.
Aside from the stunning fundamentals of the tobacco business, there is the currency play here.
The potential for growth in this business is vast, the business has a great fundamentals (they make a legal product for pennies they sell to addicts for dollars) and most importantly, they have a dominant market position in almost every market they play in. Oh, did I mention the almost 5% dividend yield?
What are the risks to it? A massive global effort to ban cigarettes. Is it likely? No. Why? Tax revenue… If the US can’t ban them because they are enslaved to their tax revenues (and Master Settlement payments) then they wont be banned anywhere else. When you add in the scenario in which many cigarette companies are in fact quasi-state run institutions and Phillip Morris has actually partnered with them, the “banning” question becomes even more remote…
So you have a business that is global, without the US litigation risks, a 5% dividend yield, vast/growing markets and a product people who use it will not do without…
It is a great business…
Disclosure (“none” means no position):Long PM
6 replies on “Phillip Morris International Makes Another Acquisition”
Is PM better or BAT? BAT has the same characteristics and is cheaper and its dividend yield is a bit higher than PM. It also has less of currency risk than PM, as it is more global. TIA for your thoughts.
i like PM more for a couple reasons
1- size, is much larger
2- china, has a very nice deal w/china tobacco so to sell cigs there, the worlds largest market
3- currency, does bat covert to euros or pounds? i am bearish on the dollar longer term so for me, that is a positive for PM
4- pm is buying back shares at a breakneck pace and will return $9B to shareholders this year
IMO
BATS LN is listed on LSE, so in pounds. BTI ADR is in dollars. So it is similar to PM, except that it has lesser currency volatility.
I agree with you that PM is a much better company than BAT. I also own it. I have been debating whether I should switch into BAT as the valuation discount is 20%, and both companies are almost similar.
why do you think it has less currency volatility?
what is BAT growing eps at? asking as i do not know
BAT has guided EPS growth to 8%-10%, PM: 10%-12%. The difference is PM is under levered vis-a-vis and doing more stock buyback, so that adds 2% to EPS growth. So one can argue for 10% discount on BTI.
BTI is more evenly split geographically, so that could be one reason currency volatility is less. Maybe BTI has done a better job matching revs and expenses than PM.
based on what i have seen in pm recently is that they are taking share and i think the premium is due to a host of recent acquisitions that while not accredive in 2009, will add to eps 2010-11. that brings to future valuation more in line (or lesser premium however you want to look at it)
don't forget, their current financial position does allow them to make additional acquisitions very easily down the road.
PM is saying currency expectations are for a 15% addition to eps in 09.
don't get me wrong, i love the tobacco biz and think BAT is great, i just like PM the most out of all of them