Cigars, Cigar Information and where to find Premium Cigars, Discounted Cigars and even Cheap Cigars

"THEY’D HAVE ALL THE BRANDS"

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Imperial can probably afford to buy Swedish, even after swallowing Altadis and taking on billions in debt. Imperial paid 14.2 times the 2006 earnings of Altadis for a $22.3 billion purchase price. Applying the same multiplier to Swedish Match, based on 2007 earnings (about $494.1 million U.S.), the price would be $7.02 billion. Imperial had operating profits (not including income taxes, depreciation and amortization) of $2.8 billion and that doesn’t include Altadis’ operating profits of $1.9 billion!

However, the U.S. Justice Department might have some problems with one company having such a high potential share of the Cuban cigar market in the U.S., although the overall share of Havana cigars in a U.S. market is likely to be small. In addition, by buying Swedish Match, Imperial would also own both J-R Cigars and Cigars International, two leaders in the retail field that might also draw some regulatory scrutiny.

Swedish Match is much more than just a cigar company, of course, and is notably attractive because of its strong position in smokeless tobacco – chew, snuff and snus – and so there are numerous other potential suitors.

Philip Morris International, now independent of Altria, Inc., had operating profits of $8.9 billion in 2007 and has not been a player in the cigar game thus far. Its focus on sales outside of the U.S. might make Swedish Match less interesting to it.

Philip Morris USA acquired machine-made cigar company John Middleton last December for $2.9 billion in cash; Middleton’s 2007 operating profits were estimated at $182 million, about 37 percent of what Swedish Match made. Altria has plenty of capacity for acquisitions: it made $4.5 billion U.S. in 2007.

British American Tobacco is in excellent position to make an acquisition. BAT had an exceptional year in 2007 and had operating profits of $5.7 billion. It is also not much of a player in the cigar trade at present.

Reynolds American had a strong 2007 with operating profits of $2.29 billion. Financial analysts have been predicting that it will acquire Swisher International sometime this year and Swisher’s wide base of machine-made cigar buyers may be a better long-term bet than Swedish Match. But Swedish offers entry into both the premium and mass-market business, not to mention the cache of Cuban brands once the embargo is eased or ends.

What about Scandinavian Tobacco? The ST Group owns Henri Wintermans, C.A.O. and pocketed $4.1 billion (U.S.) in selling its cigarette brands to BAT earlier this year. This is more of a long shot, but the ST Group is more focused on tobacco products outside of cigarettes and could be a complimentary fit for Swedish Match.

Whether Swedish Match will be sold and who will buy is unknown, but the company – and its solid profitability – are certainly of interest. At stake is a future opportunity to be one of the two major players in the sales of Cuban cigars in the U.S. and a leading role in the next “Cigar Boom.” It’s a drama worth watching.
~ Rich Perelman

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Joe Barbarotta said:

That "flow chart" that I once suggested to you showing who owns what may get less complicated if we wait long enough. It might have one or two names at the top and everything else below.

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May 06, 2008
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Did you know?

“Cigars were introduced to the American Colonies by British Col. Israel Putnam on his return from Cuba in 1762.