Japan Tobacco Inc has entered into an agreement to acquire all the outstanding shares of Al Nakhla Tobacco Company S.A.E. and Al Nakhla Tobacco Company – Free Zone S.A.E – a Cairo based waterpipe tobacco company.

The agreement has been signed between the JT Group and BATATA S.A., which controls Nakhla. JT expects to complete the acquisition in the fiscal year ending March 31, 2013.

It is envisaged that this acquisition will be funded by JT Group’s existing funds, and if necessary by loan facilities. The transaction is valued at a high single digit multiple of Nakhla’s underlying earnings before interest, tax, depreciation and amortisation in 2011.

NAKHLA EXPORTS TO 85 COUNTRIES

Nakhla, with headquarters and two factories in Cairo and Shebin El Kom, Egypt, is one of the world’s leading waterpipe tobacco (also known as molasses and shisha) manufacturers with an “important presence in its home market”.

Waterpipe tobacco is a blend of tobacco leaves with additives of sugar solutions and others. There are two types of waterpipe tobacco; traditional, also known as non-aromatic, and aromatic. Typically, charcoal heated tobacco is enjoyed after the smoke passes through the water inside the smoking device.

Nakhla, which exports to 85 countries, primarily in the Middle East and North Africa, claims a heritage of almost 100 years of industry experience. “Nakhla pioneered the concept of aromatic molasses and holds a 70% market share in this segment in Egypt,” says JT.

BIGGER FOOTPRINT IN MIDDLE EAST AND AFRICA

JT claims that Nakhla’s total sales volume was approximately 24,000 tons in 2011 (roughly comparable to 24bn cigarettes by volume), across a brand portfolio comprising El Nakhla, Classic, Mizo and other trademarks.

“Our acquisition of Nakhla offers an excellent opportunity for growth in the waterpipe segment and widens our brand portfolio, in line with our strategy to address the needs of adult consumers across a range of tobacco product categories” says Fadoul Pekhazis, Regional President of Middle East, Near East, Africa, Turkey and World Wide Duty Free for Japan Tobacco International (JTI).

“Furthermore, the acquisition enhances JTI’s geographical footprint in the Middle East and Africa, and over the long-term, provides a platform for JTI to participate in the sizeable cigarette market in Egypt.”