The rights issue by Imperial Tobacco, one of the largest ever in the UK, is intended to raise about £4.9bn. The money will be used to pay off some of the debt incurred by the £10bn acquisition of Spanish rival Altadis agreed last year, while allowing the cigarette maker to retain its impeccable credit rating. Shareholders are being offered one new share for every two they own, at a 43% discount to last night’s closing share price.
The maker of West and Gauloises cigarettes didn’t exactly sugar the pill for shareholders; it also reported a 42% drop in pre-tax profits for the six months to the end of March, to £326m. And with a likely £140m accounting cost from the Altadis deal pending, it’s not surprising that Imperial’s share price took a bit of a hammering this morning.
On the other hand, there is plenty of light up at the end of the tunnel. Imperial says the Altadis deal will generate Eu300m of cost savings by 2010, rising to Eu400m by 2012 (although admittedly it’ll have to spend Eu600m to make this happen). And it’s given the overall figures a boost – with the addition of two months of Altadis sales, revenues were up nearly 40% to £2.1bn, while adjusted profits (which excludes all the expensive deal stuff) were up 38%. CEO Gareth Davis called it ‘a great start to the year, with a strong performance from our core operations and an encouraging initial contribution from Altadis’.
And people are clearly still smoking cigarettes. With a little help from Altadis, overall sales volumes were up 34% during the six-month period – suggesting that despite the best efforts of government to tax smokers until the pips squeak, Imperial may have less to fear than most from these nervous economic times. After all, smokers may not fancy giving up their nicotine crutch now – meaning that Imperial could repeat its success of the post-dotcom downturn, when its share price doubled.
In fact, given the state of the world’s financial markets, we reckon there’ll at least be a few bankers around quoting the classic Airplane line: ‘Looks like I picked the wrong week to quit smoking’...