I'm studying this situation and it looks pretty non trivial to understand what impact the purchase of Tribac by JTI will have on AOI (and UVV). You have to simultaneously consider:
1) Will other tobacco manufacturers actually buy *more* product from AOI as a competitive response, on the assumption that Tribac will now give them second-choice products on a non-neutral basis.
2) What part of its current purchases will JTI continue to make through AOI? Can the Tribac purchase by itself together with the new joint venture actually meet all of JTI's needs? Does someone have a guess here? AOI will lose 1/2 of its 24% of sales that came from JTI? Lose 3/4?
I'm wondering if this acquisition wasn't partly JTI's attempt to simply improve its negotiating position on price against AOI and UVV? Now JTI has a good bluff hand to play in every negotiation, claiming that they can supply the tobacco themselves at better prices if they don't get a concession they want. Probably that would work too.
Overall though I wonder if JTI is really addressing the problem they want to address. JTI's CEO is saying that the price of leaf keeps going up. But it isn't the leaf dealers who set the price? The price of leaf is probably more a supply and demand function against the actual farmer's crops? If JTI wants to secure a supply at a *known cost* the only way to do that is to start farming tobacco. If you own the land and control the crop itself, then and only then do you know what your costs are going to be, independent of supply and demand for other supply. Judging by AOI's gross margins, it's not AOI that is making tobacco leaf expensive.