Cigars, Cigar Information and where to find Premium Cigars, Discounted Cigars and even Cheap Cigars - ALTADIS SAGA COMES TO THE END . . . OF THE BEGINNING

ALTADIS SAGA COMES TO THE END . . . OF THE BEGINNING

ALTADIS SAGA COMES TO THE END . . . OF THE BEGINNING

Plus: U.S. Senate committee continues consideration of FDA regulation of tobacco

Los Angeles, July 19 – “Altadis has confirmed to Imperial Tobacco that it considers that the Offer is attractive and that, in the absence of a competing offer at a higher price being filed with the CNMV [Spanish securities commission], the Board of Altadis will recommend the Offer to Altadis' shareholders and the directors of Altadis intend to accept the Offer in respect of their own beneficial shareholdings.”

With that closing statement in its public comment on the €50 ($68.89) per share offer from Britain’s Imperial Tobacco, Altadis signaled its intention to be acquired by Imperial with the two companies forming the third-largest tobacco products company in the world.

In addition to the normal technical requirements, the offer came with a number of stipulations designed to make Altadis’s decision easier:

“If the Offer is successful, Imperial Tobacco undertakes to (i) maintain a substantial presence in France and Spain, inter alia with market, regional or divisional headquarters, (ii) realize the integration without discrimination, in particular with respect to employees and envisaged synergies, (iii) honour Altadis employees’ remuneration entitlements, contractual arrangements and social plans on terms no less favourable overall than currently in place in Altadis, and (iv) invite Altadis’ chairman and CEO, plus another Altadis non-executive board member to join as directors of Imperial Tobacco; none of those persons has yet accepted such invitation.”

These arrangements offer a number of advantages for Altadis and Imperial, not the least of which is an opportunity to cool any Cuban doubts about management of Habanos, S.A., the worldwide distribution firm for all Cuban-made cigars of which half is owned by Altadis. There has been discussion by analysts and some news reports that if Altadis were simply sold to Imperial that the Cubans would exercise a previously unappreciated clause in the sales agreement to repurchase the half-share of the company sold to Altadis. Imperial C.E.O. Gareth Davis will likely have to visit Cuba to ensure that the Cubans are satisfied with the transfer.

Further, Altadis has grand plans for the introduction of at least one premium cigarette line using a Cuban cigar trademark: Montecristo. Interestingly, Imperial – through acquisition – is now the owner of the cigarette trademark for Davidoff.

The combined companies will, according to analyst reports, produce 312 billion cigarettes annually, including major brands such as:

• Lambert & Butler and Richmond in Great Britain;

• Davidoff and West and Germany;

• Gauloises and Gitanes in France and

• Fortuna in Spain.

A Forbes analysis noted that a higher bid by private equity firms such as CVC Capital Partners – which was ready to bid €50 before it fell out of partnership with PAI Partners on the deal – is possible. “The Spanish stock exchange has up to eight weeks to approve the bid, after which there will be another 20 days for any counter bids,” read the analysis in part.

Imperial C.E.O. Davis said Wednesday that “Imperial Tobacco and Altadis are a great strategic fit, which will consolidate our position as the world's fourth largest international tobacco company. This deal significantly enhances our operating platform and scale with an increased presence in profitable mature markets and improved emerging market opportunities. “We will have a leading position in Spain, complementing our existing leadership position in the UK, and will strengthen our cigarette presence in other profitable Western European markets including Germany, France and Italy. This will be supported by enhanced cigarette positions in a number of other markets such as Morocco, where we will be the number one player, Russia, Poland and Finland.

“We will also benefit from a stronger and more diversified brand and product portfolio, including key international cigarette brands and world leadership in cigars, fine cut tobacco, papers and tubes. Altadis' prestigious cigar business has a major presence in the U.S. and together with our recent acquisition of Commonwealth Brands and our existing U.S. papers and tubes operations, this will give us considerable scale in this highly profitable market.”

Imperial is buying Altadis at 14.2 times earnings, more than it would have preferred to pay noting its earlier bids of €45 and €47 a share. But, even at that level, Altadis’ profitability is less than Imperial’s own, which is 17.4 times earnings in the last reporting period.

Imperial’s own estimates project combined operating efficiencies of about $414 million per year beginning in the second full fiscal year following the acquisition. It also expects to benefit from about $897 million in assets already identified by Altadis management to be sold off.

Davis said previously that he liked all of Altadis and wanted to obtain all parts of the company – cigarette, cigar and its logistics operations. The Imperial statement about the deal did include a reference to this: “Altadis' cigar and logistics activities are both strong operations in their own right, which Imperial Tobacco believes can be further developed as part of a larger group.”

More Senate debate on FDA control of tobacco:
The next Senate Health Committee session on a proposed bill to allow the Food and Drug Administration to have regulatory control over tobacco products is scheduled for July 25.

A Reuters report on the status of the measure noted that the bill is opposed “by smaller cigarette makers as too favorable to Philip Morris” and that the proposal would “let the FDA restrict tobacco advertising; prevent cigarette sales to minors; toughen warning labels; bar misrepresentation of tobacco’s dangers; and order removal of harmful ingredients from cigarettes.”

The Associated Press reported that the “advantages Philip Morris would enjoy under FDA regulation have not been lost on competitors like the Vector Group Ltd. and Reynolds American Inc., which have begun referring to the proposal in Congress as the ‘Marlboro monopoly act.’”

Don’t forget to write your senators!
The dangerous U.S. Senate legislation to fund an expansion of the State Children’s Health Insurance Program (SCHIP) being considered by the Senate Finance Committee continues to move ahead despite threats of a veto from President George W. Bush.

Every cigar smoker who does not want to see the Federal tax cap on cigars moved from the current level of $0.05 up to $10.00 must write their Senators immediately to oppose this legislation.

Click here for a contact list of U.S. Senators with telephone numbers and electronic mail addresses. Every call counts, because almost all elected officials will open a new file on a matter if they receive 10 or more contacts of any kind from within their jurisdiction.
~ Rich Perelman

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