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Page 1 of 2  Plus: Altadis shareholders approve rule change to allow Imperial’s purchase
Los Angeles, December 19 – The consolidation in the tobacco industry continues and cigar companies – seen as a steady, profitable, growth area – are increasingly coming within the sights of the major cigarette makers as possible acquisitions.
Bonnie Herzog, a well-known tobacco analyst for Citi Investment Research, issued a research report in which she projects that Reynolds American – maker of world-renowned brands such as Camel, Doral, More, Salem, Vantage, and Winston – would buy machine-made cigar giant Swisher International.
According to Reuters, Herzog wrote in her report that “We assign a 75 percent probability that the deal could happen within the next 6-12 months.” The new service reported that “Citi analysts conducted a survey of their industry trade contacts to gauge their thoughts and found that 88 percent of respondents believed that Reynolds would be the next major tobacco company to enter the cigar sector, and 73 percent viewed a deal between Reynolds and Swisher as the next likely deal in the U.S. tobacco market.”
The prize would be considerable as the machine-made market comprises 97 percent of the 9.8 billion-unit U.S. cigar market, including large cigars such as Swisher Sweets, Phillies and White Owl and little cigars such as Captain Black and Winchester.
According to Reuters, “Herzog estimated that Reynolds could pay as much as $4.2 billion to $4.8 billion for Swisher, based on the multiple of 6-times sales that Altria Group Inc. recently agreed to pay for cigar maker John Middleton Inc. Herzog estimated that Swisher generates about $700 million to $800 million in annual revenues. Altria announced the $2.9 billion deal for Middleton last month.”
The Middleton deal closed in the past few days, but Swisher is a much larger franchise. Middleton’s sales are concentrated almost exclusively on the Black & Mild brand, but Swisher’s reach includes:
• Machine-made cigars, with the Swisher Sweets brand considered the nation’s leading brand of cigars by unit sales. Other well-known brands in its line include King Edward and Optimo.
• Little cigars, including Swisher Sweets Little Cigars and Blackstone.
• Premium cigars, including Bering Dominican Hallmark, Optimo Clasico, Sabroso, Santiago Silk and Swisher Sweets Premium Selection. Swisher holds the trademark for the Bering brand, at one time one of the largest-selling – if not THE largest-selling – cigar brand in America. The standard Bering line is now distributed by Cigars by Santa Clara, controlled by a subsidiary of Altadis, S.A., soon to be acquired by Britain’s Imperial Tobacco.
• Smokeless tobacco, including a wide variety of brands of chew, dry snuff including Railroad Mills, and Kayak and Silver Creek moist snuff, among others.
Swisher is also large enough to make a difference to Reynolds, which had revenues of $8.5 billion and profits of $1.2 billion in 2006.
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