Japanese Government To Sell $10B Stake In Japan Tobacco

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The Japanese government said it will sell one-third of its stake in the world’s third largest tobacco company, Japan Tobacco Inc (TYO:2914) to help fund the reconstruction of the areas devastated by the earthquake and tsunami in 2011. The government owns 50 percent stake in the $62 billion tobacco giant.

Japan Tobacco Logo

The Ministry of Finance said in a regulatory filing that it owns about 1 billion shares of the cigarette maker; the government will sell 333.3 million shares next month. Japan Tobacco closed today at 2,901 yen a share. Based on that price, the 16.6 percent stake will fetch $10.3 billion (967 billion yen).

Japan Tobacco, the maker of popular cigarette brands including Camel, Winston, Mild Seven and Benson & Hedges, said that it will buy back about 6.2 percent of its own shares, worth 250 billion yen ($2.7 billion) in the offering. According to the company, the buyback will take place between February 27 and March 8. The company added it would pay about 27 percent below today’s closing price or 2,119 yen per share.

Japan Tobacco Inc (TYO:2914) shares are up about 34 percent since late November, due to a weakening yen that helped boost the value of overseas earnings. The Nikkei 225 Stock Average has gained 35 percent in the same period, as the yen continues to decline. Japanese equities have touched their highest levels in four years. According to the filing, the share sale is likely to be priced on March 11.

The sale was initially planned for last year during the economic slump, but the finance ministry delayed it. The government passed a sell down bill in 2011 under which the government can reduce its stake to 33 percent in the company.

The offering may attract rivals Philip Morris International Inc. (NYSE:PM) and British American Tobacco Plc (NYSEAMEX:BTI) (LON:BATS) because of the company’s strong market position and healthy finances. Japan Tobacco has zero debts. For the financial year ending March 31, the company has increased earnings forecast to 330 billion yen from the previous estimate of 318 billion yen.

Last month, prime minister Shinzo Abe increased the reconstruction budget by 6 trillion yen to 25 trillion yen. The Ministry of Finance said that the expenditure will be partially financed by selling government stake in companies, including Japan Tobacco Inc (TYO:2914).

Daiwa Securities Group Inc (TYO:8601) and Goldman Sachs Group, Inc. (NYSE:GS) are jointly coordinating the sale.

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