The Market Monitor Minding the Nation's Business
The government expects to collect soon a P25-billion compromise deal with domestic cigarette maker Mighty Corp. over unpaid taxes as a result of Japan Tobacco International’s (JTI) acquisition of the local firm in a P50 billion deal. JTI, which is partly owned by the Japanese government, has sealed the deal to acquire cigarette manufacturer Mighty Corp. for P45 billion, of which P25 billion will be paid to the government to settle Mighty’s tax liabilities.
The value-added tax on the JTI-Mighty deal is expected to bring in an additional P5 billion for the government, Finance Secretary Carlos Dominguez III said.
Mighty, through, JTI, already remitted to the Bureau of Internal Revenue (BIR) P3.44 billion on July 20, representing the initial tranche of its tax settlement.
The remainder will be paid to the government upon the approval by the Philippine Competition Commission of JTI’s acquisition of Mighty.
Mighty has a 23-percent share of the local market and Japan Tobacco’s acquisition showed its aggressive expansion plan to enter emerging markets.
The deal has been stated as one of the largest deals in Southeast Asia, and will include Mighty Corp’s extensive distribution, network, manufacturing equipment, inventories and intellectual property.
The deal will enable Japan Tobacco to consolidate its business foundation through expanded distribution and a strengthened brand portfolio.
Set to complete in the third quarter, Japan Tobacco’s presence has been fully driven by premium product Winston, but it will now add local brands ‘Mighty’ and ‘Marvels’.
“I am confident that this acquisition will enable our continued expansion in the market and will allow us to leverage MC’s unique brands and their nationwide distribution network in the very near future,” said Eddy Pirard, JTI’s President and CEO.
“We want to establish ourselves in markets like Brazil, Bangladesh, Indonesia, Philippines, and grow sustainably to strength our business foundations,” Japan Tobacco spokeswoman Kana Miyauchi said.
Indonesia is reportedly home to the largest region of smokers, at over 30 percent, followed by China and the Philippines at 28 percent respectively.
The company has also recently purchased 100 percent of the outstanding shares of Indonesia’s PT. Karyadibya Mahardhika (“KDM”), and its distributor, PT. Surya Mustika Nusantara for $677 million.JT agreed to pay P52.6 billion including tax, for assets belonging to Mighty.
The Japanese company has already begun expanding in the Philippines, opening a cigarette plant in April.
That factory will take over production of brands such as Camel from a Malaysian facility set to close in December.
Relocating those functions to a major smoking nation is expected to cut costs.JT is also bolstering its scanty presence in Central and South America. The company acquired Bis Overseas Bolivia, a distributor of tobacco products and smoking supplies, in 2016, aiming to expand its roughly seven percent market share in the South American nation.
The Japanese company has been slower to cultivate a presence in emerging nations than many of its rivals. Philip Morris International of the U.S. and British American Tobacco of the U.K. have a foothold in nearly 200 nations, compared with JT’s 120 or so. But the company will likely continue its investments apace, aware that a solid presence in those valuable markets is the key to future success. LUIS LEONCIO