British American Tobacco has agreed to buy tobacco company TDR from Croatia’s Adris Grupa for €550 million to increase its scale in Croatia, Bosnia and Serbia.

As tobacco consumption is declining in many Western markets, tobacco companies are seeking to expand in new markets or to consolidate in order to reduce costs and boost profits.

British American, the world’s second largest international tobacco company, also recently bid to takeover Souza Cruz, Brazil’s largest tobacco company.

Tobacco companies are seeking to expand in new markets

Adris, which also operates in the tourism and insurance industries, said in September it might seek a partner for its cigarette unit as rising global competition was hurting its business.

Adris said BAT had undertaken an obligation to preserve for at least five years tobacco production on the northern Adriatic Istrian peninsula, or to secure an additional €50 million in case of early closure of the factory in Kanfanar.

Last year Adris posted revenue of 5.48 billion kuna (€720 million), while net profit amounted to 351 million kuna, down from 385.6 million in 2013.

Sales of its tobacco products were nine per cent lower than a year before, while two thirds of its revenue came from abroad.

The deal represents a multiple of about 12.5 times TDR’s 2014 Ebitda of €44 million.