Indonesia: Gudang Garam sells subsidiaries to Japan Tobacco Inc for $677m

Gudang Garam, one of Indonesia’s largest tobacco companies, has agreed to sell its wholly-owned subsidiary Karyadibya Mahardika (KDM) and its distributor Surya Mustika Nusantara (SMN) to Japan Tobacco Inc (JT Group), a filing revealed.

The share sale – valued at $677 million – is expected to be completed in the fourth quarter this year. JT Group will also take over the companies’ debt of $323 million, making the total deal worth $1 billion.

JT Group has grown its empire by acquisitions. The company paid 35 million euros for 98.5 per cent of Senta Tobacco Industry in May 2006, with a further $10 million invested since then. In September 2015, it was announced that the firm would buy the rights for Natural American Spirit outside the US for $5 billion.

It is currently in talks for a possible $890 million deal to buy the assets of Mighty Corp, a Philippine cigarette-maker “accused of evading billions of pesos in taxes,” according to reports.

In Indonesia, JT Group is mainly involved in the conventional cigarette business. The firm said, the deal will give it “immediate scale and presence on a national level in the Indonesian kretek market.”

“We are excited to enter the Indonesian kretek market nationwide by leveraging KDM’s supply chain, including procurement and production, as well as SMN’s broad-scale distribution network,” said Mutsuo Iwai, Executive Vice President and President of the Tobacco Business.

“This will be an important expansion of our geographic footprint in emerging markets for our future sustainable growth. Notably, this is our first significant acquisition in South-East Asia and an excellent opportunity for us to further develop our business in a thriving region,” he added.

KDM operates through nine production facilities of kretek cigarettes in Java and sells its products across Indonesia through SMN. The two entities employ around 7,500 people.

Commenting on the buyout, JT Group’s president and CEO Eddy Pirard said: “I am confident that KDM’s excellent kretek products and local expertise and SMN’s strong distribution platform, together with JTI’s international know-how, will further strengthen our growth in Indonesia. We look forward to welcoming all employees into our organization.”

Data showed that Indonesia has the world’s second-biggest cigarette market after China, selling about 316 billion sticks last year.

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