* Carlyle, Pamplona among parties weighing bids-sources
* Imperial Tobacco, Japan Tobacco also looking-sources
* Company hoping to fetch as much as $2 bln-sources
* Blackstone, Advent, CVC looked and passed-sources
By Soyoung Kim and Greg Roumeliotis
NEW YORK, Aug 16 (Reuters) – Private equity firms Carlyle
Group LP and Pamplona Capital Management LP are among a
handful of parties weighing bids for Republic Tobacco, a
privately held company that makes the Drum brand of loose
tobacco in the United States, according to people familiar with
the matter.
These buyout firms are pursuing Illinois-based Republic
Tobacco even as some of their private equity competitors,
including Blackstone Group LP, CVC Capital Partners Ltd
and Advent International Corp, decided not to pursue a bid due
partly to investor concerns about investing in controversial
industries, the people said.
Investors in private equity firms, known as limited partners
(LPs), often have restrictions on investing in so-called “sin”
businesses such as tobacco, alcohol, gambling or weapons. The
limited partners can negotiate opt-outs from individual fund
deals.
Pamplona, a London-based investment house backed by Russian
tycoon Mikhail Fridman, has a different investor base from the
largest U.S. private equity firms, which count pension funds and
social endowments in California and New York as some of their
major limited partners.
Carlyle, Pamplona, Blackstone and Republic Tobacco declined
to comment. Advent and CVC Capital Partners, which looked at,
but passed on Republic Tobacco, according to the sources, did
not respond to requests for comment. The sources asked not to be
identified because the matter is not public.
“My sense is there will be some LPs who would say we are not
going to do it and many who say go ahead,” said Steven Kaplan, a
University of Chicago finance professor whose research focuses
on private equity.
Republic, which is said to be seeking as much as $2 billion
according to some of the people, has also attracted interest
from Britain’s Imperial Tobacco Group Plc, one of the
people said.
“We’re always interested in potential acquisition
opportunities, provided they would deliver value for our
shareholders. We do not, however, comment on rumor or
speculation,” an Imperial Tobacco spokesman said.
Japan Tobacco Inc also expressed some interest in
the auction of Republic Tobacco. The auction of Rebublic is
being run by Credit Suisse Group AG, the people said.
Credit Suisse declined to comment.
However, they cautioned that Japan Tobacco has had a
long-stated strategy of staying out of the U.S. market where it
sees high risk of litigation.
Its new President Mitsuomi Koizumi reiterated last week the
company was not considering expanding into the United States.
When asked on Wednesday about its potential interest in
Republic, the company said it does not comment on future
acquisition possibilities.
PRIVATE EQUITY’S TOBACCO APPETITE
While robust financing markets have boosted private equity
appetite for leveraged buyouts in recent months, Republic
Tobacco has attracted only a small number of buyout firms partly
due to the controversial nature of the business, according to
the people familiar with the matter.
Limited partners such as California Public Employees’
Retirement System (CalPERS), California State Teachers’
Retirement System (CalSTRS), Florida State Board of
Administration, and many pension funds in New York often
encourage so-called “socially responsible investing”.
Some avoid businesses involved in alcohol, tobacco,
gambling, pornography and weapons.
The most famous acquisition of a tobacco company by private
equity was KKR & Co LP’s $25 billion leveraged buyout of
RJR Nabisco in 1988, a battle that was immortalized in the 1990
bestseller “Barbarians at the Gate”.
KKR sold its remaining stake in RJR in 1995 and major buyout
firms have since been wary of investing in tobacco companies as
the industry’s challenges mounted, while some limited partners
decided to stay out of such investments.
A private equity bid for Franco-Spanish tobacco firm Altadis
failed in 2007 after PAI Partners dropped out of a consortium
with CVC, allowing the company to be taken over by Imperial
Tobacco.
Tobacco companies are often seen as defensive investment
plays because they trade in consumer staples, but cigarette
smoking is in decline in many developed markets due to a shift
in regulations as well as popular culture.
As a result, tobacco companies like Altria Group Inc,
Reynolds American and Lorillard often rely on
price increases to drive sales growth.
Republic Tobacco’s major product lines include cigarette
tobacco, cigarette papers, filtered tubes, accessories, pipe
tobacco and cigars. Other brands Republic owns include Top
tobacco and Job rolling papers.
Republic is owned by D.R.L. Enterprises, a holding company
founded in 1969 by Chicago entrepreneur Donald Levin. D.R.L has
businesses in aircraft, medical equipment, machinery leasing,
film making and licensed sports product manufacturing.
Levin’s film company has made nearly 20 motion pictures
distributed in the United States and overseas, featuring such
stars as Emilio Estevez, Charlie Sheen, Sharon Stone, Rodney
Dangerfield and Chuck Norris.
(Reporting by Soyoung Kim and Greg Roumeliotis in New York;
editing by Carol Bishopric)
