Japan Tobacco in talks to buy assets of Philippines' Mighty Corp for $890 million

Japan Tobacco Inc (JT) headquarters building is seen in Tokyo, Japan, May 18, 2016. REUTERS/Toru Hanai

MANILA (Reuters) - Japan Tobacco Inc 2914.T is in talks over a 45 billion peso ($890 million) deal to buy the assets of a Philippines cigarette maker accused of evading billions of pesos in taxes.

Mighty Corp, which has been charged with avoiding 37.88 billion pesos in tax payments, has offered to pay the Philippines government 25 billion pesos.

It will fund the tax settlement with a 45 billion peso sale of its assets to JT International Philippines, a local subsidiary of Japan Tobacco, the Philippines’ Department of Finance said in a statement, quoting a letter from Mighty President Oscar Barrientos.

A Japan Tobacco spokeswoman in Tokyo confirmed the company was in talks with Mighty to buy its manufacturing and distribution assets, but declined further comment.

Officials at Mighty, the second-largest tobacco company in the Philippines, were not immediately available for comment.

Japan Tobacco, the world’s third-biggest tobacco company, said in May it was looking for mergers and acquisitions in emerging markets such as southeast Asia, Africa and Latin America, as it diversifies away from its home market.

It is also widely seen as a potential suitor for Britain's Imperial Brands IMB.L, and Jefferies analysts said on Wednesday the purchase of Mighty did nothing to change that, given the small size of Mighty.

“This further highlights their appetite for a deal and perhaps the urgency with which JT knows it needs to act to address structural pressures and close the gap on peers,” Jefferies said.

The potential acquisition by Japan Tobacco, which sells the Winston, Mild Seven and Camel brands in the Philippines, would help it to challenge the dominance of PMFTC Inc, a joint venture of the Philippines unit of Philip Morris International PM.N and unlisted Fortune Tobacco Corp, in the southeast Asian country's cigarette market.

Reporting by Neil Jerome Morales in Manila and Taiga Uranaka in Tokyo; Additional reporting by Martinne Geller in London; Editing by David Goodman and Mark Potter