British American Tobacco Plc., Europe’s largest cigarette maker, has bought a majority stake in PT Bentoel Internasional Investama, the nation’s fourth-largest cigarette producer, to bolster its stake in the country’s highly lucrative cigarette market.

BAT bought the stake from various shareholders, including previous majority holder Rajawali Group, a local diversified-business giant, a media statement said Wednesday.

The producer of top brands such as Dunhill, Lucky Strike, Kent and Pall Mall, BAT said Wednesday it paid US$494 million for an 85 percent stake (Rp 873 per share) in Bentoel, which has a 7 percent share of the Indonesian cigarette market.

With BAT’s local unit, PT BAT Indonesia, claiming another 2 percent of market share, the acquisition will strengthen its presence in Indonesia, which, by volume, is the world’s fifth-largest market with 250 billion cigarettes produced annually.

Even with the acquisition, however, the company has some way to go to catch up to its bigger rivals.

Indonesia’s cigarette market is dominated by Philip Morris International’s H.M. Sampoerna (27 percent), Gudang Garam (22 percent) and Djarum (21 percent).

“This transaction represents an excellent strategic opportunity to enter the very large and growing Indonesian kretek market and will provide a platform for future growth,” John Daly, the BAT’s Asia Pacific director, said in the statement.

Kretek, clove-flavored cigarettes, account for more than 90 percent of Indonesia’s market, with regular cigarette making up the rest.

Bentoel sells regular and kretek cigarettes. Its brands include Bentoel, Star Mild, X Mild and Country.

Wednesday’s statement said the deal represented 12.9 times the underlying earnings before interest, tax, depreciation and amortization (EBITDA), compared to the 14.1 times EBITDA when Imperial Tobacco bought Altadis last year, and the 13.7 times when Philip Morris acquired Sampoerna for $5 billion in 2005.

BAT previously paid 11.2 times EBITDA for Denmark’s ST and 11.4 times for Turkey’s Tekel in 2008.

Indonesia is an attractive market for any cigarette maker, with Bloomberg reporting that about a third of Indonesia’s 248 million people smoke, compared to only 21 percent in the United States, according to government figures.

Indonesia is the only country in Asia that has not signed up to the WHO’s Framework Convention on Tobacco Control.

Following the acquisition, BAT will also bid for the remaining shares and expects to complete the tender offer scheme by the end of August, which could boost the acquisition value to $580 million.

The Rajawali Group, founded by Indonesian entrepreneur Peter Sondakh, will now focus on three business sectors.

“Rajawali saw the right opportunity and timing to release our stake in Bentoel,” the group’s managing director of business development, Darjoto Setyawan, said in a statement.

“Rajawali as an investment company now wants to focus on the property, plantation and mining

sectors.”

He added Rajawali had brought added value to Bentoel after purchasing it in 1991, in terms of modern management to help it become one of the big players in the industry.

Popular

Is Indonesia really ready to embrace dual citizenship?

Tens of thousands seek better lives in Jakarta. But is the city losing its draw?

Elon Musk's Starlink granted licences to operate in Indonesia