China tobacco merger to form industry leader: report

SHANGHAI (Reuters) - Hongyun Group and Honghe Group, two major tobacco firms based in southwest China's Yunnan province, plan to merge to form the world's fourth-largest cigarette maker by volume, the official Shanghai Securities News said on Tuesday.

The merger is part of a consolidation of the fragmented tobacco industry in China, the world's largest cigarette producer and consumer with a growing market of more than 300 million smokers.

The companies and their parent China Tobacco Yunnan Industrial Corp could not immediately be reached for comment.

Hongyun Group posted 29 billion yuan ($4.2 billion) in revenue in 2007 and Honghe reported 16 billion yuan, according to their websites (www.hongyun.com and www.honghe.com).

The semi-official China News Service said if the deal were approved, the new group would surpass Imperial Tobacco Plc (IMT.L) to become the world's fourth-largest tobacco producer by number of cigarettes sold, after Philip Morris International (PM.N), British American Tobacco (BATS.L) and Japan Tobacco Inc (2914.T).

But the two companies' combined revenues are less than 30 percent of Imperial's revenue for the year ended on September 30, 2007.

Cigarettes in China, where one package can sell for less than a dollar, are among the cheapest in the world.

The deal still requires government approval, the Shanghai Securities News said.

($1=6.848 Yuan)

(Reporting by Rujun Shen; Editing by Edmund Klamann)