Shareholders of Imperial Tobacco have given the green light to the UK’s second-largest tobacco company to increase the size of its rights issue to fund an acquisition of Altadis.

Imperial was already planning the City’s second-largest share issue, of about £3.5 billion, to fund the €14 billion (£9.5 billion) deal. Sources now expect that figure to be at least £4 billion.

Imperial has been talking to its shareholders, which include Invesco Asset Management and Legal & General, during the past two weeks. It is understood that the maker of Lambert & Butler, Superkings and Embassy cigarettes already has their broad support to press ahead with a raised offer.

A shareholder said: “If the deal stacks up, the investors will support it. Tobacco mergers are well regarded by the market because they produce certain returns on synergies and Imperial Tobacco’s management is well respected.”

BACKGROUND

• Imperial gets fired up over Altadis bid

• Imperial snubbed as Altadis opens books

• Imperial’s investors back bigger rights issue

• Imperial Tobacco bids £7.6 billion for Altadis

• New laws could stub out Imperial’s US hopes

Davis launches great tobacco merger

An Imperial-Altadis deal is logical. The company wants Altadis’s stable of brands, ranging from Gauloises Blondes to Cohiba and Montecristo

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Another investor said: “Providing they can make a decent case for the acquisition and make sure it creates value, I don’t think a larger rights issue will scare the horses. We’ve funded acquisitions of theirs in the past and they’ve always been value creating.”

Imperial had hoped to submit a raised offer formally, thought to be between €48 and €50 a share, before Easter. That deadline could now slip given that most Spanish businesses will be shut on Thursday and Friday, sources said.

Altadis, which owns Gauloises and Gitanes, dismissed Imperial’s first €45 per share offer as “non-solicited nor negotiated” but its management is believed to be receptive to takeover talks provided that the two firms can agree on value.

Other sources said that the advisers of Imperial and Altadis were engaged in discussions about a value that Altadis would be comfortable with before opening its books for due diligence.

City analysts said that the size of any rights issue would depend on what Imperial decided to do with Logista, Altadis’s distribution arm. According to analysts at Cheuvreux, a sale of this unit could raise about €3.9 billion.

Meanwhile, sources said that BAT, the world’s second-largest tobacco company, was continuing talks with private equity firms about a possible joint bid that would see private equity take Logista and BAT keep the remainder.

A spokesman for Imperial declined to comment.

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