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Rothmans takeover gets federal approval

U.S. tobacco giant Philip Morris International has won the last blessing it needs from Ottawa to take over Canada’s only Canadian-owned, publicly traded tobacco processor.

New York-based PMI in late July announced a $2 billion, $30-per-share bid for Rothmans Inc., pending approval from Canada’s Competition Bureau, as well as approval from Industry Canada under the Investment Canada Act, as per its rules for foreign takeovers.

Competition Bureau approval was granted Aug. 14, followed by Industry Canada approval on Friday, PMI said in a release.

PMI, maker of cigarette brands including Marlboro and Chesterfield, already owns a 40 per cent stake in Rothmans’ tobacco products company, Rothmans, Benson and Hedges (RBH), whose brands include Craven A, Benson and Hedges, Rothmans, Number 7 and Mark Ten.

Toronto-based RBH operates leaf tobacco processing plants at Brampton, Ont., and at Quebec City. As part of the friendly takeover bid, PMI has pledged to keep operating those plants, modernize them and provide “minimum employment assurances.”

PMI’s offer for Rothmans shares is open until Tuesday (Sept. 16).

Rothmans has been in the Canadian tobacco industry for over 100 years; one of its predecessor companies, Quebec City-based Rock City Tobacco, dated back to 1899. The company has previously invested in breweries, wineries, sports franchises and retail operations but says it found that such “fractionalization of effort led to reduced profitability and performance.”

Rothmans also recently took on more financial woes when it reached an agreement with Ottawa and all 10 provinces to end an RCMP investigation, relating to sales of products that RBH had exported from Canada between 1989 and 1996.

That agreement, announced July 31, the same day as PMI’s takeover bid, calls for fine payments totaling $550 million over 10 years starting this year, and for RBH to plead guilty to a single count of violating a provision of Canada’s Excise Act.

The RCMP investigation, according to Rothmans, had related to allegations that some of the tobacco products RBH made and exported were “illegally smuggled back into Canada without payment of applicable excise and tobacco taxes and duties.”

The $550 million owed has already turned up on the company’s bottom line in its first quarter ending June 30. Rothmans on Aug. 12 posted a Q1 loss of $354.4 million on $178.7 million in revenues, down from a $33.8 million profit on $180.1 million in revenues in the year-earlier period.

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