Japan Tobacco and Philip Morris buy 40% of Russian distributor

Japan Tobacco (JT) and Philip Morris will each buy a 20 percent stake in Russian distributor Megapolis for a total of more than $1.5 billion, as the rivals move to tap the world's second-biggest cigarette market. JT said it would pay $750 million for its share in the firm, plus another $100 million tied to the distributor's "operational performance". US giant Philip Morris, maker of the top-selling Marlboro brand, separately announced a deal with similar terms. Megapolis has a 70 percent share of Russia's distribution market, delivering more than 260 billion cigarettes last year, the Japanese firm said. The investment would "strengthen the long-term relationship between the JT Group and Megapolis", it said. Russia is the world's second-largest cigarette market behind China. The JT agreement, which is expected to be finalised by the end of this month, comes as the firm looks to expand its overseas business to counter declining sales at home. The company, one of the world's biggest tobacco firms and whose international brands include Winston and Camel, has suffered lacklustre domestic sales, as Japan's once huge number of smokers shrinks. Previously released figures from JT showed that about 21 percent of adults in Japan smoke now, down from 25 percent in 2009. A sales tax hike, set to be introduced in April, is also expected to take its toll on the domestic market, and observers say they expect the company to focus on overseas sales and other segments such as food and medical products. JT, which employs about 5,000 people in four factories in Russia, said in October it was slashing a fifth of its 8,900 workforce in its core tobacco business and closing four plants in Japan.