Half Billion Dollar Tobacco Deal on Hold

The failure of Japanese Tobacco International (JTI) to pay the half a billion dollars it offered in the bid for a 40pc share of the Ethiopian National Tobacco Enterprise (NTE) has delayed the transfer of the shares. The Ministry of Public Enterprise had sent a letter of award signed by Meseleche Wodajo, state minister, to the company demanding settlement by June 8, 2016.

As per the terms outlined in the bid document, the letter demanded a 100pc payment, which is required of a foreign bidder.

A source close to the process told Fortune that JTI came up with new demands on the asset valuation of the NTE.

JTI has also responded to an email inquiry from Fortune stating that the company is still in a constructive and positive dialogue with the Ministry.

Despite the claimed dialogue and demand for clarification, the bid document clearly states that failure to comply with the ministry’s call and signature of the contract will result in forfeiture of the bid bond.   It further indicates that failure to meet a deadline might actually lead to the award being transferred to the second runner up.

On May 19, JTI had offered a record high price for privatisation of the state-owned NTE, offering a little over half a billion dollars for its share of the tobacco monopoly. The second offer was lower by almost half.

British American Tobacco (BAT), following the Japanese state-owned tobacco corporation, had offered 230 million dollars.

The bid for 40pc ownership of the Tobacco Enterprise had attracted huge international companies, including the American giant Philip Morris International (PMI).

Despite the stiff competition anticipated among the contenders, the price offers showed huge gaps, with PMI actually offering the lowest price of 120 million dollars, a little over the minimum valuation estimate.

The landslide win of JTI is now in a foggy stage, having moved back into dialogue with demands for clarification.

Such steps, which are part of the due diligence process are clearly indicated in the initial bid document as processes that should take place before the companies submit offers.

The bid document clearly stipulates that any company that fails to do its due diligence and value estimation should put this forward as a factor for non-compliance with contractual offers by the Ministry.

The inability of the Ministry to decide on the award or probably look at the second bidder is due to the size of the offer made by JTI, a consultant and former employee of what is now a ministry, who has three years’ experience as a member of tendering committee told Fortune.

“It seems like they don’t want to lose them,” he said.

A far cry from JTI’s offer, an individual bidder from Niger, Irro Ado, offered 35.1 million dollars for 10pc of the share.

It was after this individual bidder that Philip Morris, through Pan African Entrepreneurs Limited, offered a quarter of the price offered by JTI.

It is now exactly one month since the financial opening was made. Any of the contenders to be awarded will get its hands on the Enterprise that registered 400 million Br profit last year. National Tobacco Enterprise was first put up for privatisation in 1999. At that time, a 22pc share of the company was transferred to Sheba Investment Group for 35 million dollars. This company owns 29pc of the shares with the remaining 31pc owned by the Ethiopian government.

The Ministry has declined to give any comment on the evolving issue, except to confirm that the transfer is still in process.

JTI, a subsidiary of Japan Tobacco Inc. was established in 1999. The parent company acquired the non-American operations of the multinational R. J. Reynolds for 7.8 billion dollars. Its total shipment volume in the first quarter of 2016 grew to 94.4 billion cigarette equivalent units and its revenues amounted to 2.46 billion dollars, 4.2pc higher than the same period last year.

For JIT, which is known for its brands such as Winston, Camel, and Benson & Hedges, its potential acquisition in Ethiopia will be its first expansion.


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