International cigarette giant Japan Tobacco Inc. (JTI) has completed its acquisition of the assets of homegrown manufacturer Mighty Corporation (Mighty), paving the way for the full payment of P30 billion to the Philippine government as part of the agreement to settle the latter’s unpaid tax dues.
“The acquisition is in line with Japan Tobacco Group’s geographic expansion for sustainable growth. It also provides a nationwide distribution network in the Philippines and strengthens the group’s brand portfolio with the addition of local brands such as Mighty and Marvels,” JTI said in a statement late Thursday.
JTI said it bought P46.8 billion in assets of the Bulacan-based Mighty.
It added that “the transaction will not have any material impact on Japan Tobacco Group’s consolidated performance for the fiscal year 2017.”
JTI’s products are being sold in more than 120 countries and its most popular brands are Camel, LD, Mevius, Natural American Spirit and Winston.
Last week, the Philippine Competition Commission approved JTI’s acquisition of Mighty, which the anti-trust body said was “not likely to result in anti-competitive effects in the market.”
“There appears to be no ability nor incentive for the parties to engage in anti-competitive coordinated behavior. Sufficient competitive constraints remain from other market participants after the sale,” the PCC said.
“In the transaction, JTI Philippines will own the sales and distribution network, manufacturing and equipment and inventories of Mighty, while Japan Tobacco International SA, an affiliate of JTI Philippines, will own the trademarks and associated intellectual property of Mighty and Wong Chu King Holdings Inc. JTI Philippines is a company engaged in the business of importation, manufacturing, distribution and marketing on wholesale basis of tobacco products; while JTI SA is a global company engaged in the manufacture and sale of tobacco products,” the PCC also said.
In his second State of the Nation Address (Sona) last July, President Rodrigo Duterte ordered the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to accept Mighty’s settlement offer of P25 billion, under which the firm “will no longer engage in the tobacco business.”
Mighty was the second biggest cigarette manufacturer in the country after PMFTC Inc., the joint venture of tycoon Lucio Tan and global giant Philip Morris International.
“This will be the biggest tax settlement on record. It will produce a windfall for government, which is significant, since we face the unexpected costs of rebuilding Marawi and Ormoc,” Duterte had said in his Sona, referring to the two cities flattened by fighting between government forces and ISIS supporters as well as damaged by an earthquake, respectively.
But the President said “the acceptance of the tax settlement offer does not preclude other criminal charges against the company that the BIR may decide to file.”
The government decided to settle with Mighty as it wanted “to avoid a long court battle that, as we saw in previous cases, could take years to resolve,” the President explained.
The BIR had filed before the Department of Justice three tax evasion cases against Mighty and its top executives for a total of P37.9 billion in unpaid excise taxes due to alleged use of fake tax stamps.
DOF Secretary Carlos G. Dominguez III had said the government expects to collect up to P30 billion, including value-added tax, from the settlement with Mighty.
The tax settlement amount will be funded by the sale of Mighty’s assets and distribution network to JTI Philippines.
In July, the DOF through the BIR accepted an initial P3.44-billion payment from Mighty and JTI. KGA