CVC close to Altadis deal

Private equity firm CVC is in negotiations with banks to provide the financing it requires to lead the buyout of Spanish cigarette company Altadis.

CVC has been interested in submitting a formal offer for the group since UK cigarette maker Imperial Tobacco first approached its Spanish rival on March 15 this year.

The private equity group has struggled to persuade others to join its consortium. Cinven was initially supposed to be supporting CVC, as was French firm PAI Partners, but both have subsequently pulled out.

According to a report, bankers have agreed to fund the offer at €50 a share, which values the maker of Gauloise cigarettes at €12.8bn (US$17.1bn).

It is thought that Goldman Sachs, which is advising CVC on its potential offer, is one of the banks involved. Merrill Lynch has also been mentioned. Both would provide the majority of their funding in debt, while taking minority equity stakes.

This would be surprising since both are nominally US lenders, and Merrill Lynch is advising Altadis. CVC has previously found it difficult to find US support for the deal. Altadis has an agreement to distribute Cuban cigars in Europe. The US currently has an embargo on Cuban imports.

Spanish savings bank Caja Madrid was also touted as a potential provider of financing, but it has since denied that it has “taken on any commitment” yet. Singapore state investment vehicle GIC has also been suggested as a consortium member.

Banks are thought to be keen to support any bid, because Altadis, which also owns a tobacco distribution arm and a 50% interest in duty free shops, is likely to be broken up, leading to further deals.

Imperial Tobacco, the UK cigarette producer, had also indicated that it would make a €47 a share offer for its Spanish counterpart. Like CVC, it continues to conduct due diligence on the company.

A spokesman for Imperial declined to comment on the reports that CVC was close to securing financing for its bid. Some have suggested that Imperial itself might become a takeover target if it fails to buy Altadis.

One of the directors Altadis is Carlos Colomer, an adviser to CVC.