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All CW News

Scandinavian Tobacco Group to Merge with Swedish Match

by Frank Seltzer

January 15, 2009

A letter  of intent has been signed between Scandinavian Tobacco Group (STG)  and Swedish Match to form a new company focusing on premium cigars and pipe tobacco.  In announcements made simultaneously in Denmark and Sweden,  the companies say Scandinavian Tobacco  will control 51 percent of the new venture, with Swedish Match having the remaining 49 percent.  STG’s  CEO  Anders Colding Friis will  head the new company.  STG will pay Swedish Match  approximately 40 million Euros (S57.5 million) as compensation.
 
 
 
Swedish Match is contributing basically General Cigar’s premium brands, pipe tobacco and accessories excluding the U-S mass market cigar lines, while STG is putting all of its tobacco business into the new venture.
 
Scandinavian Tobacco,  known originally for its Henri Wintermans brand purchased in 1996, has been growing into the premium cigar market since it first bought the CAO brand in January 2007.   The following year, the company sold its cigarette and snus business to British American Tobacco.   Last year, STG bought two cigar factories – the Toraño factories in Esteli, Nicaragua and Danli, Honduras—the latter being co-owned between the Toraño and the Olivas families.
    
This latest move, according to the release, is in accordance with STG’s vision to become a world leader in cigars and a leading player in smoking tobacco.  The combined entity will have a combined volume of more than 2.5 billion cigars and 1,650 tons of pipe tobacco.  The re-alignment according to Swedish Match will allow it to concentrate  on its smokefree business (snus and snuff) while enhancing its cigar brands.
 
STG will gain the General premium lines of Macanudo,  and the U-S brands of Partagas , Punch, La Gloria Cubana and Hoyo de Monterrey as well as the General cigar factories in the Dominican Republic and Honduras.
 
The companies expect to sign a final transaction agreement by June.
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Frank Seltzer (Mowee) is a former network correspondent who now owns a media consulting company in Dallas, TX. A regular cigar smoker since 1973, Frank runs the DFW Cigar Society, a group that has almost 300 members who get together twice a month to trade smokes and lies. He also runs away as often as he can to his condo in Maui... hence the name Mowee (which, by the way, was the way Captain Cook originally spelled the island when he heard Hawaiians speak it.) 

 

 

Full Text of STG Press Release

• Scandinavian Tobacco Group (STG) – formerly named Skandinavisk Tobakskompagni - will contribute all its tobacco business (cigars, pipe tobacco and fine cut tobacco)
• Swedish Match (SM) will contribute all its cigar business (with the exception of US mass market cigars), as well as its pipe tobacco and accessories business
• Completion of the transaction is subject to due diligence by both parties, final transaction agreements, bondholder approval, and regulatory review and approval

In accordance with its strategic vision to become a world leader in cigars and a leading player in smoking tobacco, STG has signed a letter of intent with SM to form a company combining the tobacco business of STG with the cigars businesses of SM (with the exception of SM’s US mass market cigar business). The company will also include the pipe tobacco and accessories business of SM, as well as distribution of lighters and matches in relevant markets.

The combined entity will have an annual turnover of just under MEUR 700 and a combined volume of more than 2.5 billion cigars and 1,650 tons of pipe tobacco, placing it firmly as one of the largest cigar companies in the world and as world leader in pipe tobacco. The company will have leading positions in the markets for premium cigars in the US and for cigars in Europe, and hold strong positions in a number of other markets. Its leading cigar brands will include brands such as Café Crème, Henri Wintermans, Colts and Mercator, among others, from STG, with SM contributing brands such as Macanudo, Partagas (US), Punch (US) and La Paz. Its leading pipe tobacco brands will include Erinmore, Clan and W.Ø. Larsen from STG and Borkum Riff and Half&Half from SM.

STG will hold 51% of the shares in the new company, with the remaining 49% of the shares being held by SM. On the basis of the preliminary valuations, which are subject to due diligence by both parties, STG will compensate SM by approximately MEUR 40 to account for the planned shareholding and the relative differences in enterprise values on a debt and cash free basis. Anders Colding Friis, CEO of STG, will become CEO of the new company.

SM produces and sells market-leading brands in smokefree tobacco products, cigars, lighters and matches. SM’s global operations generated sales of MSEK 14,139 for the twelve months period ending September 30, 2009. It has production units in 10 countries and the SM share is listed on the NASDAQ OMX in Stockholm.

“The Letter of Intent marks the intention of both parties to form a value enhancing business combination within the cigar and smoking tobacco industry. Such a business combination would be complementary, create synergies and result in an overall stronger company,” says Anders Colding Friis, CEO of Scandinavian Tobacco Group.
 
Completion of the transaction is subject to due diligence by both parties, final transaction agreements, as well as bondholder and regulatory approvals. Signing is expected during the first half of 2010 and completion as soon as possible thereafter. Please note that there can be no assurance that the transaction will be completed.