Tobacco maker, Philip Morris International Inc. (PM), has inked a $625 million deal to takeover 49% stake in the United Arab Emirates (:UAE) company — Arab Investors-TA (:AITA). The deal will give Phillip Morris 25% stake in its distribution partner in Algeria – Société des Tabacs Algéro-Emiratie (:STAEM) – which manufactures and distributes Philip Morris' Marlboro and L&M cigarette brands in Algeria.
STAEM has been jointly held by AITA (51%) and Algerian state-owned Société Nationale des Tabacs et Allumettes SpA (49%) since 2005.
The deal will allow the Marlboro owner to secure a strong foothold in the Algerian tobacco market where its brands occupy a major share. The deal will prove accretive to the company's earnings in fiscal 2014. Algeria has recently witnessed a surge in the smoking population, particularly female and young people.
As per market research firm, Euromonitor International, Philip Morris’ major competitor in Algeria is state-owned Société Nationale des Tabacs et Allumettes, which is a leader in high tar cigarettes. The Algerian tobacco industry is expected to grow in the coming months as the government has not imposed any strict anti-tobacco legislation.
Moreover, the partnership with UAE-based AITA will open business opportunities in Egypt and certain other North African and Middle Eastern markets which offer great growth opportunities.
In a separate development, Philip Morris completed the buyout of 20% interest its its Mexican tobacco business – Grupo Carso – for approximately $700 million on Sep 30. Since PM has business outside the U.S., these strategic deals will help it to penetrate faster into growing markets and maintain sales and margins growth.
Other Stocks to Consider
PM currently has a Zacks Rank #4 (Sell). Other stocks that the investors might consider include British American Tobacco (BTI), Lorillard Company (LO) and Schweitzer-Mauduit International Inc. (SWM). All these stocks carry a Zacks Rank #2 (Buy).