Gallaher in Japan bid sights at 7 billion

Shares in Gallaher soared above 10 today after the cigarette maker revealed a bid approach valuing it at close to 7 billion.

Bidder Japan Tobacco's stock rose 6 percent in Tokyo on hopes of a deal. Gallaher confirmed it had been approached but said talks were at an early stage, and did not name the bidder.

Investors are convinced the revelation of talks will flush out at least one counterbidder. Philip Morris, owned by Altria, would be the most likely rival but both Britain's other tobacco companies, British American Tobacco and Imperial Tobacco, are likely to have a look.

A marriage of Gallaher, which makes Benson & Hedges and Silk Cut, and Japan Tobacco, the world's third-largest tobacco group and known for its Camel, Winston, Salem and Mild Seven brands, would create a global giant.

The Japanese firm has been keen to expand its international side ever since it bought the non-US tobacco business of RJR Nabisco for $7.8 billion (3.9 billion) in 1999.

Gallaher said: "The company confirms that it has recently received an approach which may or may not lead to an offer. The approach is preliminary and there can be no assurance that any offer will be made." It earns 70 percent of its profits from the shrinking cigarette markets of Britain, Ireland, Austria and Sweden, and to offset this fall it has been expanding into Russia, where it owns the Liggett-Ducat, Kazakhstan and Ukraine brands, and earnings there have risen sharply.

Japan Tobacco, still 50 percent-owned by the Japanese government, said last year that its international cigarette volumes overtook its domestic volumes for the first time. It has a 70 percent market share in Japan.

Gallaher chief executive Nigel Northridge, who has been on the board for almost 10 years, owns 254,000 shares in the company worth more than 2.5 million and has options over another 480,000.