Imperial to buy Altadis in $22 bln deal

LONDON (Reuters) - Britain's Imperial Tobacco (IMT.L) agreed to buy Franco-Spanish rival Altadis ALT.MC on Wednesday in a 16.2 billion euros ($22.4 billion) deal that includes debt.

The deal will be funded by a rights issue of up to 5.4 billion pounds ($11 billion).

Imperial said the 50 euros per share cash deal will bring about cost savings of around 300 million euros a year, strengthen its position as the world's fourth largest cigarette group, and be earnings enhancing the first full year after completion.

The move will join together the world's fourth largest cigarette group, Imperial, and the fifth, Altadis, and close the gap with the world's top three groups; Altria Inc. (MO.N), British American Tobacco (BATS.L) and Japan Tobacco (2914.T).

"Imperial Tobacco and Altadis are a great strategic fit, which will consolidate our position as the world's fourth largest international tobacco company," said Imperial Chief Executive Gareth Davis in a statement.

Altadis said its board would recommend the offer to shareholders unless it received a higher bid.

Imperial shares rose 0.5 percent to 22.12 pounds by 0710 GMT while Altadis shares were suspended until 0800 GMT.

Imperial is planning to dispose of non-core assets valued by Altadis at 650 million euros.

Imperial says the offer will be financed through a new banking debt of 9.2 billion pounds, with a right issue of 5.4 billion pounds planned in the next 12 months.

Altadis, which has also received a 50-euros-a-share bid proposal from private equity firm CVC Capital Partners CVC.UL, had rejected two previous lower indicative bids from Imperial.

The deal will bring together Imperial, which makes Lambert & Butler and Richmond cigarettes in Britain, and West and Davidoff in Germany with Madrid-based Altadis, which makes Gauloises, Gitanes and Fortuna cigarettes and also Montecristo cigars.

Speculation of an Imperial-Altadis deal first emerged in December 2004, and on March 14, 2007, Imperial made a cash indicative bid for Altadis at 45 euros a share and increased that to 47 euros in April, but both were rejected.

Then private equity groups CVC Capital Partners CVC.UL and PAI Partners made their 50 euro bid on May 4 and four days later Altadis said it was openings its financial books to both rival parties. But by May 31, PAI had withdrawn and CVC said was to go ahead alone with the bid.