March 16, 2018 / 1:53 PM / a year ago

UPDATE 1-Japan Tobacco to buy Russian tobacco group Donskoy in $1.6 bln deal

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By Martinne Geller

LONDON, March 16 (Reuters) - Japan Tobacco has agreed to buy Russia’s Donskoy Tabak for about 90 billion roubles ($1.56 billion) to strengthen its leading position in the world’s third-largest tobacco market.

Japan Tobacco, the third-biggest international cigarette maker, has been on the hunt for overseas deals to offset shrinking sales at home. Its new CEO told Reuters in January that it was working on several possible deals, having spent about $2 billion on acquisitions last year in Asia.

Japan Tobacco and its peers — Philip Morris International , British American Tobacco and Imperial Brands — are grappling with slowing sales as more people give up smoking. Consolidation has been expected, especially after BAT’s takeover last year of Reynolds American.

The company behind Winston and Camel cigarettes said on Friday that Donskoy Tabak would increase its Russian market share to 40 percent and add to profits immediately.

With about 7 percent of the market, Donskoy Tabak is the fourth-biggest tobacco company in Russia with brands such as Donskoy Tabak, Kiss and Play.

Russia’s multi-billion dollar tobacco market, dominated by foreign groups, has come under pressure in recent years due to tightening regulations.

Since 2013, the government has restricted cigarette sales, banned advertising and sponsorship of events by tobacco companies, banned smoking in public places and raised excise taxes.

The deal is expected to close by the beginning of the third quarter of fiscal year 2018 pending regulatory clearance.

$1 = 57.6114 roubles Additional reporting by Maria Kiselyova in Moscow; editing by Jason Neely and Adrian Croft

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