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. Last Updated: 07/27/2016

Philip Morris Makes $5Bln Indonesia Bid

JAKARTA, Indonesia -- Philip Morris International said Monday it was bidding $5 billion to buy Indonesian tobacco firm PT Hanjaya Mandala Sampoerna Tbk to expand in the world's fifth-largest cigarette market.

Philip Morris, the tobacco arm of Altria Group and maker of Marlboro cigarettes, is looking for growth in emerging markets as consumption falls in the United States and other developed countries due to increased taxes, smoking bans and restrictions on advertising.

"The Third World environment typically presents a lot of opportunity for growth," said Manny Goldman, a U.S. consumer products industry consultant.

The deal marks the biggest foreign takeover in Indonesia -- a country that has struggled to win investment -- and is a booster for the five-month-old government, analysts said. Corruption and legal wrangles caused foreign investment approvals to fall 27 percent in 2004.

"When someone is willing to pay $5.2 billion in a country like Indonesia, it's a vote of confidence," said Laksono Widodo, head of research at Macquarie Securities in Jakarta.

Philip Morris set a deal to buy a 40 percent stake in Sampoerna, and is tendering for the remaining shares at a 20 percent premium to their closing price on March 10. Shares of Sampoerna -- the country's third-largest tobacco firm -- closed up 18 percent, driving the stock market to a record high.

Philip Morris, which is paying cash and expects to complete the tender in 90 days, put the total value of the deal at $5.2 billion, including $160 million of debt. It expected the transaction to contribute modestly to Altria's earnings this year.

Philip Morris is bidding for outstanding shares of Sampoerna at 10,600 rupiah ($1.13) per share, a 20 percent premium from the Thursday close of 8,850 rupiah. Sampoerna closed up 18.1 percent at 10,450 rupiah, pushing the benchmark index up 1.4 percent to 1,123.482.

The deal values Sampoerna at 20 times its expected 2005 earnings, a premium to the ratio of 15 for PT Gudang Garam Tbk, the country's largest tobacco company. Unlisted PT Djarum is the second-biggest producer.

"When you are Philip Morris, and you are going into a country like Indonesia, you have a very long time horizon," Goldman said.

Indonesia -- the largest tobacco market after China, the United States, Japan and Russia -- is a prime growth target for Philip Morris International.

Sampoerna, which has almost 20 percent of the Indonesian market with clove cigarette brands like Dji Sam Soe and A Mild, had an operating income of $360 million on revenues of $1 billion in 2004, Philip Morris said. That compares with a $6.6 billion operating profit for Philip Morris International in 2004.