K K Modi Investment and Financial services (KK Modi IFS), a subsidiary of the KK Modi Group will acquire a 10.83% stake in Godfrey Phillp India (GPI) from Phillip Morris. GPI is a joint venture between KK Modi IFS and Phillip Morris. KK Modi IFS will acquire Philip Morris’s 11,22,201 shares in the JV company, which was set up 1979.
The transaction will be executed on May 28, post which, KK Modi group’s share holding in the JV will go up to 46.984%, while the tobacco company, Phillips Morris’s stake will drop to around 25%. The transaction will be an inter se transfer between the qualifying promoters. GPI sell cigarette brands like Four Square, Jaisalmer, Red & White,Cavanders and Tipper in India.
According to a report in The Economic Times, the two JV partners are looking at floating a separate company to market the cigarette brand, Marlboro, owned by Phillip Morris. The new company, reportedly, will not market any of the existing brands of GPI. The US based cigarette maker will hold a majority stake in the new company.
Since an expansion in production will not be allowed by the government, the company will use the idle capacity at its plants in Mumbai and Ghaziabad to manufacture Marlboro, says the report.
In 2003, Phillip Morris had signed an agreement with Barakat Foods & Tobacco for the distribution of Marlboro Cigarettes in India. This had strained the relations between Phillip Morris and the KK Modi group. Phillip Morris had then cited the reason that Marlboro was one of its most valued brands and it did not intend to give it to a company that it did not control.
Marlboro is already sold in the Indian markets but it is imported into the country through illegal routes. ITC has largest share in the Indian cigarette market, with a 65% share. The recent ban that the government put on smoking in public places has led to a significant decline in the cigarette sales across the country.
The cigarette sales are expected to further decline post May 31 when cigarette manufactureres will being putting pictorial health warnings on their products, as per the Supreme Court's order that was issued earlier this month.