Japan Tobacco set to dominate US tobacco market with $2.4bn Vector Group deal

Japan Tobacco Inc. (JT) has announced a significant strategic acquisition, agreeing to acquire Vector Group Ltd. (VGR), the fourth largest tobacco company in the United States. This move marks a pivotal expansion for JT Group into the US tobacco market.

Details of the Acquisition

The agreement stipulates that JT will conduct a tender offer for all outstanding shares of Vector Group Ltd. through a newly established subsidiary, Vapor Merger Sub Inc. The offer is set at $15.00 per share, valuing the total transaction at approximately USD 2.4 billion (around 378 billion yen). The acquisition, unanimously supported by Vector Group Ltd.’s board of directors, is expected to close by the end of JT Group’s current fiscal year, which concludes on December 31, 2024. The deal is subject to antitrust approvals and satisfaction of standard closing conditions. Upon completion, Vector Group Ltd. will become a wholly owned subsidiary of JT and will be delisted from the New York Stock Exchange.

Strategic Significance

This acquisition is a crucial component of JT Group’s Business Plan 2024, which focuses on enhancing its position in the global tobacco market. By acquiring Vector Group Ltd., JT Group aims to significantly bolster its presence in the US, the second-largest tobacco market by net sales. The acquisition will increase JT’s market share in the US from 2.3% to approximately 8.0% and will give JT full ownership of two of the top ten US cigarette brands.

Vector Group Ltd. has been known for its strong performance and profitable business operations, which aligns with JT’s strategy to enhance its Return-On-Investment (ROI) in combustibles. This integration is expected to not only boost JT’s financial position through enhanced hard currency profits and cash flows but also support its investment strategy in Reduced-Risk Products, including heated tobacco sticks.

Background on Vector Group Ltd.

Founded in 1993, Vector Group Ltd. has established itself as a significant player in the US tobacco industry. The company’s portfolio includes well-known cigarette brands and has demonstrated consistent profitability over the years. Vector Group’s operations include substantial manufacturing and distribution networks, which JT Group aims to leverage to strengthen its competitive position in the US market.

Executive Comments

Masamichi Terabatake, CEO and President of JT Group’s Tobacco Business, highlighted the strategic importance of the acquisition, stating, “We are excited by this acquisition which, in line with our tobacco business strategy, will contribute to the acceleration of the ROI in our combustible business and expand JT Group’s global footprint. By adding this sizeable and historically profitable business to our Company, we are confident the transaction will contribute to sustainable growth and increase JT Group’s corporate value.”

Eddy Pirard, President and CEO of JT International, emphasized the impact on market share, saying, “This transaction will significantly increase our US presence, boosting our market share from 2.3% to approximately 8.0% and giving us full ownership of two of the top-10 US cigarette brands. The transaction will enable us to also strengthen our distribution network, and create mid to long-term strategic opportunities to boost our competitiveness in this major tobacco market.”

Impact and Future Outlook

The acquisition is expected to have a lasting impact on JT Group’s operations and strategy. By integrating Vector Group Ltd., JT aims to achieve greater economies of scale and improve its market penetration in the US. This move will also provide JT with additional resources to invest in Reduced-Risk Products, aligning with global trends towards healthier alternatives in the tobacco industry.