Cigarettes and Tobacco News

Apr 5, 2007 -- LOUISVILLE --The British company Imperial Tobacco Group PLC successfully plugged a giant gap in its global business, entering the U.S. cigarette market with its acquisition of Kentucky-based Commonwealth Brands in a $1.9 billion deal completed this week.

The deal allows Imperial, one of the world's biggest tobacco companies, to inherit the fourth-largest cigarette producer in the United States. Commonwealth Brands, maker of discount brands USA Gold and Sonoma, has an estimated 3.7 percent of the $376 billion U.S. market.

Imperial Chief Executive Gareth Davis said this week that his company plans to boost profit from its new acquisition by launching additional brands.

"We will absolutely be investing to grow and develop the business there," Imperial spokesman Alex Parsons said in a phone interview yesterday.

Imperial bought Commonwealth Brands from Bowling Green-based Houchens Industries Inc., whose other businesses include Food Giant, IGA, Piggly Wiggly and Mad Butcher food stores. Houchens acquired Commonwealth Brands, the trading name of CBHC Inc., in 2001.

Jimmie Gipson, chairman of privately owned Houchens, said, "The sale generates significant value for Houchens' shareholders and will provide capital to expand our existing businesses and to seek new business opportunities."

Parsons said Imperial has no plans to move the operations of Commonwealth Brands and that the senior management team will stay on to help chart Imperial's course in the United States.

Commonwealth Brands has a work force of about 720 and a factory in Reidsville, N.C., that makes 14 billion cigarettes a year. Its other brands are Montclair, Malibu and Riviera.

Parsons said Imperial had resisted the U.S. market because of the "litigation climate" -- in which a number of multimillion-dollar lawsuits were filed against the tobacco industry.

"That has eased considerably in recent years," Parsons said.

Imperial's expansion to the United States got the attention of its competitors.

At the time the Commonwealth Brands sale was announced in February, Reynolds American Inc. Chairman Susan M. Ivey called it a "good strategic buy" by Imperial. "Commonwealth has always been a strong competitor in that low-value market," Ivey said at the time.

Bristol, England-based Imperial, whose brands include Regal, Lambert & Butler and Davidoff, sold 187 billion cigarettes in more than 130 countries in the fiscal year ending last September -- a 7 percent sales increase from the previous year. Davis previously said Imperial expects the United States to become its third-largest market behind Britain and Germany.

"We want to grow and develop the business, and there are some significant blank spots on our global footprint," Parsons said. "And the U.S. was obviously a key one to look at."

He said Imperial views the United States as "an extremely profitable market."

Parsons, citing competitive reasons, declined to offer hints on whether Imperial's U.S. strategy will focus on discount brands or the introduction of its premium cigarettes.

"We don't want to show our hand," he said.