Gallaher, the maker of Benson & Hedges and Silk Cut cigarettes, has agreed to be bought by Japan Tobacco for a recommended cash offer worth £7.5bn.

Under the terms of the offer, Gallaher shareholders will receive £11.40 for each Gallaher share.

Japan Tobacco is the world's third largest cigarette company, while Gallaher is the fifth largest.

Analysts believe Japan Tobacco's offer could trigger rival bids from private equity groups, British American Tobacco or Philip Morris International.

“The offer from Japan Tobacco reflects Gallaher's achievements and provides shareholders with the ability to realise their investment for cash at an attractive value, and creates an opportunity for the business as a whole,” said John Gildersleeve, chairman of Gallaher.

Hiroshi Kimura, president and CEO of Japan Tobacco, added: “Japan Tobacco and Gallaher complement each other perfectly and will create a leading tobacco company with strong positions in both Europe and the CIS region.”

In a trading update released this morning, Gallaher said overall current trading was in line with management expectations, although the UK duty-paid cigarette market declined by about 3-4% in the first 10 months of 2006.