Russian cigarette maker takes a final puff

The largest Russian owned cigarette manufacturer is up for sale, with foreign buyers eager to get their hands on the company. Donskoy Tabak is based in the south of the country and currently has about 4% of the domestic market.

Donskoy Tabak

Donskoy Tabak is up for sale.

The company produced about 26 million cigarettes last year, and bought local rival Nevo Tabak at the beginning of the year. It has two local brands, Donskoy Tabak, and Nasha Marka, and produces the Richmond and Senator brands under licence.

Higher taxes and new law anti-smoking laws have put pressure on tobacco producers, making it difficult for smaller companies to survive. “Big international companies have more options to meet the requirements, than smaller ones”, says Vadim Zhilin chief executive of Russian Association of Tobacco Producers. “Companies are trying to be more efficient and merging”, he added.

The Kommersant newspaper reports Imperial Tobacco is interested in buying Donskoy Tabak. If it were to do so, Imperial’s market share in Russia would rise to over 12%.

The sale of Donskoy Tabak would be the biggest deal in the Russian tobacco market since Balkanskaya Zvezda was bought by Spanish Altadis for $200 million in 2004. But a cost of the probable deal is still unknown. Imperial tobacco acquired Altadis in 2008. It is the fourth largest tobacco producer in Russia along with JTI, Philip Morris and BAT.

The tobacco industry is one the most innovative industry in Russia although the major part of the market is controlled by foreign companies. The tobacco companies operating in Russia supply local demand and export about 20 billion of cigarettes a year. About 40 million Russians are smokers.

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