Souza Cruz, one of the largest corporations in Brazil and the country’s largest domestic cigarette producer, could soon become a completely foreign-owned company. United Kingdom-based British American Tobacco is considering an offer to buy the shares of the company that it does not already own in a bid that would value that stake at up to $3.53 billion.
There is no certainty that a bid will go forward, and furthermore, any transaction would still need approval from British American Tobacco’s board of directors. Under Brazilian securities law, the deal also requires approval from an independent appraiser. But observers who follow Brazilian politics and business say a Souza Cruz sale makes sense and should encounter little legal resistance. Industry analyst Erik Bloomquist tells Bloomberg News that the transaction should encounter little objection from the Brazilian government “as there does not appear to be a lot of political capital to be maintained by remaining listed. Souza Cruz would remain a powerful corporate in Brazil.”
British American Tobacco currently owns 75.3 percent of Souza Cruz. The tobacco giant has proposed a cash offer of 26.75 reais per share for the 24.7 percent of Souza Cruz that it does not own. While that price is about 13 percent more than Souza Cruz’s last closing price before the deal was announced, British American Tobacco notes that its offer represents a 30 percent premium to the average Souza Cruz closing share price in the last three months. If the sale is approved, Souza Cruz would become a private company.
Souza Cruz has a long history in Brazil, dating to 1903 when Portuguese immigrant Albino Souza Cruz began producing cigarettes in Rio de Janeiro under the Dalila brand, Reuters reports. Souza Cruz transferred control to the larger British American Tabacco in 1914 as part of a growth strategy. He remained chairman of the company until 1962.
With nearly 80 percent of Brazil’s cigarette market, Souza Cruz is the country’s largest tobacco company. Meanwhile British American Tobacco is a global company that sells more than 200 brands in more than 200 markets. But there is even more reason for British American Tobacco to be interested in Souza Cruz. Apparently Brazil is British American Tobacco’s biggest market, accounting for approximately 12 percent of the company’s operating profit. Brazil is also the sixth largest cigarette market in the world.
While a sale of Souza Cruz would remove local ownership ties from the largest Brazilian maker of tobacco products, it would be a windfall to the company’s minority owners.
