Japan Tobacco to Purchase Gudang Garam’s Unit for US$677m

JT Group Cigarettes

JAKARTA (TheInsiderStories) – Japan Tobacco Inc. (TSE: 2194) or JT Group has agreed to acquire Gudang Garam (IDX: GGRM) subsidiary, PT Karyadibya Mahardhika (KDM) and its distributor PT Surya Mustika Nusantara (SMN) for US$677 million, company said in official statement.

Total deal reach US$1 billion because JT Group will take over KDM’s debt of US$323 million. The JT Group also expect to completed the transaction in the fourth quarter of this year.

“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 of JT Group.

Mutsou Iwai

Data show that Indonesia is the world second largest tobacco market with 324 billion cigarettes in 2016, mainly composed kretek cigarettes. The JT Group will involved in the conventional cigarette business in Indonesia.

“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.

Meanwhile, JTI’s President and CEO of JT Group 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.”

Commenting on JT Group expansion move in Indonesia, Analyst at PT Mandiri Sekuritas, Adrian Joezer said JT Group’s move to enter Indonesia will heat up the cigarette market that already been highly competitive.

“This company will be a valuable asset for JT Group as a multinational company, so we believe that the competition will continue to heat up,” he said.

He predicted JT Group will diversify its products beyond kretek cigarettes and produce mild cigarettes in the future because it is more profitable than kretek cigarettes. Moreover, JT Group launched camel mild cigarette in Indonesia and it has potential to disrupt big cigarette players sales such as GGRM and PT HM Sampoerna (IDX: HMSP). (RF)