Philip Morris, Fortune Tobacco form joint venture
MANILA, Philippines (1st UPDATE) - Cigarette maker Philip MorrisPhils. Manufacturing Inc. (PMPMI) and local cigarette firm FortuneTobacco have merged to form Philip Morris-Fortune Tobacco Corp.,creating a virtual cigarette monopoly in the country.
The deal was finalized Thursday morning and was scheduled to beannounced at 12:30 p.m. Thursday in a press conference.
A source privy to the transaction told ABS-CBN News' RickyCarandang that the merged company will be owned 50-50 by the twoformer rivals, and that the merger only involves their Philippine operations.
Fortune Tobacco's Lucio Tan will be the chairman of Philip Morris-Fortune Tobacco Corp., while Chris Nelson, Philip Morris' countrymanaging director will be the president of this new company, the source said. Day-to-day operations will reportedly be underNelson's responsibility
Sources earlier told ABS-CBN News that Tan would have a minorityshare in the firm, but a source said Thursday this was incorrect.
It has not been disclosed how much the deal is worth.
Neither company is listed on the Philippine Stock Exchange, butdisclosures overseas by Philip Morris show that the company earnedover US$2.4 billion dollars in 2009 in Asia alone.
The merger would result in a company with a virtual monopoly oncigarettes that combines Fortune Tobacco's estimated 60% share ofthe cigarette market and Philip Morris's estimated 30% share.
The Philippines is the 15th largest consumer of cigarettes in theworld, and the second largest in Southeast Asia, consuming as muchas 80 billion sticks a year, according to the World Health Organization.
Reporting for ANC on Thursday, Carandang said the merger could be amove by Tan to sell in order to avoid internal problems.
"The stories in the Chinese business community are that Mr. Tan isaging, he's not in good health, and he's had succession problems.It's not clear at this point who is going to take over. He's haddisputes with his brother, so given the lack of clarity aboutsuccession and his health, the decision was made to go with thismerger," Carandang said.
Carandang said there was also talk in the Chinese community that"Mr. Tan was apparently the first to approach Philip Morris aboutthis deal."
He also reported that "it's not clear also at this point whetherthere'll be further consolidation."
"The question now is whether this is just the first of other stepsthat will eventually lead to Philip Morris acquiring an even largershare of Fortune Tobacco," Carandang reported. -- with a report from ANC
MANILA, Philippines (3rd UPDATE) - The Philippine unit of Philip Morris International and unlisted Fortune Tobacco Corp. (FTC) will combine their core businesses in a new company which will control 90% of the local cigarette market.
"Philip Morris and Fortune Tobacco concluded an agreement to form a new company called PMFTC," Chris Nelson, president of Philip Morris Philippines, told reporters.
"It's 50-50, it's an equal marriage. We are not going to divulge the financial details," Nelson said.
When asked which group initiated the talks, Nelson said: "We kissed at the same time."
The new company will command a dominant position in the local tobacco market, with Philip Morris Philippines Manufacturing Inc. and Fortune Tobacco, owned by one of the country's richest men, Lucio Tan, having a combined share of about 90%.
Philip Morris—which sells Marlboro cigarettes and is the world's largest non-state-owned tobacco firm, with over $2.4 billion earnings in Asia last year—considers the Philippines its 12th-biggest market. Through the new firm, it gains wider access to the local cigarette market, including the profitable medium- to low-priced segments.
A joint statement said Fortune Tobacco and Philip Morris "each contributed selected assets and liabilities into the new company, with each party holding an equal economic interest."
Philip Morris will retain its export business, shipping cigarettes mostly to Thailand. It declined to give the value of the export business.
Fortune Tobacco will keep its interest in the distribution of the Winston brand of Japan Tobacco Inc., the statement said. It also said the new firm would not be affected by pending tax and ownership disputes with local courts involving Fortune.
Philip Morris has dominated the high-end cigarette market in the Philippines for years while Fortune Tobacco is the top player in the medium to low-priced cigarette segment, with a 60% share of the entire industry.
"By uniting our business operations with a well managed and successful company that has an outstanding distribution and manufacturing infrastructure like FTC, we are laying the foundation for the long term success of PMFTC Inc.," Nelson said.
"While Philip Morris currently competes mainly in the premium price segment, FTC's strength is in the value and medium priced segments. Thus, PMFTC Inc will have a representation in all segments of the Philippine market," he said.
The Philippines is the 15th largest consumer of cigarettes in the world, and the second largest in Southeast Asia, consuming as much as 80 billion sticks a year, according to the World Health Organization.
Tan's decision to sell
Reporting for ANC on Thursday morning, Carandang said the merger could be a move by Tan to sell in order to avoid internal problems.
"The stories in the Chinese business community are that Mr. Tan is aging, he's not in good health, and he's had succession problems. It's not clear at this point who is going to take over. He's had disputes with his brother, so given the lack of clarity about succession and his health, the decision was made to go with this merger," Carandang said.
Carandang said there was also talk in the Chinese community that "Mr. Tan was apparently the first to approach Philip Morris about this deal."
He also reported that "it's not clear also at this point whether there'll be further consolidation."
"The question now is whether this is just the first of other steps that will eventually lead to Philip Morris acquiring an even larger share of Fortune Tobacco," Carandang reported. --With reports from Reuters, ANC, ABS-CBN News