KT&G shares fell Wednesday after Japan Tobacco International (JTI) offloaded its entire 2.1 percent stake in the Korean tobacco monopoly before the market opened, ending a decade of strategic partnership.

According to investment banking sources Tuesday, Citigroup Global Markets tapped investors to sell the Japanese tobacco giant’s 2,864,094 shares in KT&G in a block deal.

The company had initially sought a 2.0 to 3.5 percent discount. After gauging investor demand, the final price was set at 94,000 won ($78.8), a 2.8 percent discount to the Tuesday closing price.

KT&G shares finished Wednesday at 96,500 won, 0.72 percent lower from the previous session.

JTI first acquired KT&G shares 10 years ago to help its Korean partner fend off the hostile bid from the activist hedge fund manager Carl Icahn. KT&G had turned to JTI to take on the role of white knight as it showed little interest in getting involved in KT&G’s management. As the sole foreign tobacco player among KT&G shareholders, the company also held great sway over other foreign investors. JTI gradually scaled up its holdings in the Korean firm from the mid-2000s and at one time owned more than 3 percent.

The exact reasons behind JTI’s latest move have not been revealed. But market experts say JTI may have lost the incentive to keep the strategic alliance after shifting its Korean production to the Philippines two years ago.

Some suggest JTI’s parent, Japan Tobacco, is under pressure to shore up its ailing balance sheet. Japan Tobacco racked up 4.5 trillion won worth of M&A deals over the past three years, which has put a strain on its finances. Proceeds from the KT&G block deal are expected to reach 269.4 billion won.

The Korean consumer boycott of all things Japanese has also hurt JTI sales in recent months. JTI’s retail market share in Korea fell to 9 percent in July, down from mid-10 percent in the previous month. Deep-simmering tensions between the two countries came to a head in July when Tokyo tightened export curbs against Seoul in response to Korean court rulings on wartime forced labor during Japan’s occupation of Korea.

By Pulse

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