Philip Morris International Inc.: Paving a New Tobacco Road

July 23, 2009
The $63.6 billion tobacco giant grows with recent acquisitions

Anti-smoking crusades might be putting a damper on tobacco sales in the United States, but other countries present opportunity for Philip Morris International Inc.

In July the New York-based company acquired two tobacco products manufacturers. The company's latest purchase was Colombian cigarette maker Productora Tabacalera de Colombia, Protobaco Ltda (Protobaco). Philip Morris International (PMI) said on July 10 it paid $452 million to acquire the privately held company.

Protabaco is the second-largest tobacco company in Columbia, producing an estimated 6.1 billion cigarettes in 2008 and a 32% market share. The company reported net revenues in 2008 of approximately $107.6 million, according to PMI. Its top-selling brands include Mustang, Premier and President. The acquisition builds on the company's increasing presence in Columbia after it purchased Compania Colombiana de Tabaco S.A. in 2005.

"We are extremely pleased to reach this agreement with Protabaco in order to continue to build our business in this important and strategic market," said Miroslaw Zielinski, president of PMI's Latin America and Canada region, in a July 10 statement. "This strategically compelling transaction will provide PMI with an excellent opportunity to further develop Protabaco's strong brand portfolio and reflects the continuing confidence we have in the future of Columbia, its economy and the tobacco industry."

Earlier in the month, PMI also agreed to buy Swedish Match South Africa Ltd. (SMSA) from parent company Swedish Match AB for 1.75 billion South African rand, or approximately $222 million. SMSA produces pipe tobacco and snuff, which accounts for 31% of total tobacco consumption in South Africa, according to PMI.

Philip Morris International Inc.
At A Glance

Philip Morris International Inc.
New York, N.Y.
Primary Industry: Tobacco
Number of Employees: 75,600
2008 In Review
Revenue: $63.6 billion
Profit Margin: 10.82%
Sales Turnover: 1.93
Inventory Turnover: 4.98
Revenue Growth: 15.51%
Return On Assets: 21.50%
Return On Equity: 44.74%
SMSA's revenues in 2008 totaled 687 million rand, or about $88 million.

"This financially attractive acquisition represents an excellent strategic fit for our business in South Africa," said Jean-Claude Kunz, president of PMI's Eastern Europe, Middle East & Africa region, in a July 2 statement. "We firmly believe that merging the two businesses will provide us with the talent, infrastructure and expertise to further build and grow our portfolio of strong brands in this important market."

The transaction is pending approval by South African regulatory authorities and is expected to be completed by the end of fourth-quarter 2009, according to PMI.

PMI is coming off a 12% first-quarter profit decline. Net earnings in the first quarter were $1.5 billion, or 74 cents per share, compared with $1.7 billion, or 79 cents a share in the year-earlier period. Revenues declined 7.4% to $13.3 billion. The company attributed the declines to the economic downturn.

The company will report its second-quarter results on July 23.

Update: Philip Morris International reported July 23 that second-quarter profit fell nearly 9% from the previous-year period. Click here to read the company's entire news release.

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About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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