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. Last Updated: 07/27/2016

European Pair Forms No. 4 Tobacco Firm

PARIS -- France's Seita announced its decision Tuesday to merge with Spain's Tabacalera tobacco company in a deal that would create a powerful new tobacco group and the top manufacturer of cigars worldwide.

Both Seita and Tabacalera hope the new company, to be called Altadis, will be better able to compete with international conglomerates, especially the U.S. and Japanese giants, according to a Seita communiqu?.

The merger is the latest in a wave of European consolidation that has touched the banking, oil and pharmaceutical industries, among others.

Seita said it would not reveal how much the deal was worth, although it would create a top-tier tobacco firm, with the fourth largest revenue of world tobacco companies.

Tabacalera was offering 19 shares for six Seita shares, and Seita shareholders will also get an exceptional dividend of 5 euros ($5.39) per share once the merger goes through. Shares will be listed on the Madrid and Paris stock markets.

The headquarters of the new group will be in Paris.

The companies said they had decided to merge because of their common interests and cultures and because of the strength of the French and Spanish tobacco markets.

Seita and Tabacalera will each have a 50 percent stake in the merged firm, as neither government was willing to cede control to a foreign partner.

Altadis will have a market share of 47.5 percent in Spain and 34.8 percent in France, based on 1998 numbers. The company would be the world's largest manufacturer of cigars, producing 3 billion units per year, with a world market share of 24.7 percent.

The two companies said the merger should be in place by the end of December. The merger will be referred to competition authorities in both the European Union and the United States.

Seita and Tabacalera had confirmed Monday that they were in the advanced stages of merger talks, and shares of both companies rose sharply.

French President Jacques Chirac, on a visit Monday to Spain, had expressed hope that the merger would take place, saying that "it seems to conform to my idea of our interests and cooperation."

Seita has been seeking foreign linkups since it was privatized in 1995. The French government still has a minority stake.

The merger talks follow a March agreement that Seita and Tabacalera signed to share marketing and distribution channels in Europe. The two companies also had joined forces in an unsuccessful bid for the international tobacco business of RJR Nabisco Holdings, which ultimately sold the business to Japan Tobacco.

The failed bid drove home the need to build a European tobacco giant to compete with U.S. and Japanese companies, Seita chief executive Jean-Dominique Comolli said at the time.

Analysts said the only regulatory problems facing Tabacalera and Seita would be from antitrust authorities in the United States.

The new group will have a presence in 20 countries, with revenues outside of France and Spain representing almost one-third of combined revenues of the two companies in 1998.