Philip Morris strikes an agreement on local tobacco manufacturing with Eastern
Eastern agrees to let Philip Morris make smokes in Egypt: The Egyptian arm of tobacco giant Philip Morris is on course to manufacture cigarettes in Egypt after reaching an agreement with Eastern Company, according to a disclosure to the EGX (pdf) filed by the state tobacco monopoly on Thursday. United Tobacco Company was the only company to bid in last year’s tender to establish a second cigarette manufacturer, paving the way for it to acquire a license and enter the Egyptian market.
Eastern will acquire a quarter of United Tobacco: Under the terms of the tender, Eastern Company will take a 24% stake in United Tobacco, according to the statement. It is unclear whether United Tobacco would sell existing shares or go ahead with a capital increase.
United will only manufacture products owned by Philip Morris, a condition designed to protect Eastern’s market share by avoiding the newcomer producing cigarettes in the same price category as the popular Cleopatra brand. After it has acquired the license, Eastern will lease the production lines to the company for three years. In the meantime, Eastern will continue to produce Philip Morris products until the beginning of the next fiscal year in July.
There’s no word on pricing: The initial terms of the tender had stated that the new company would be required to price its cigarettes 50% above Eastern’s. The disclosure did not mention pricing.
The process of finding a new cigarette manufacturer has been a long one: Originally launched over a year ago, the Industrial Development Authority (IDA) was forced to pull the tender and relaunch it after tobacco companies complained that the conditions gave unfair advantages to Eastern Company. The IDA has not yet released any statement on the results of the tender, and it’s not clear when United Tobacco can expect to receive its license.