Cigars, Cigar Information and where to find Premium Cigars, Discounted Cigars and even Cheap Cigars - CIGARS INTERNATIONAL BOUGHT BY SWEDISH MATCH

CIGARS INTERNATIONAL BOUGHT BY SWEDISH MATCH

CIGARS INTERNATIONAL BOUGHT BY SWEDISH MATCH

Plus: a Black Pearl cigar fit for a King!

Los Angeles, August 16 – The world’s second-largest cigar company has agreed to acquire one of the world’s largest retailers of cigars.

Swedish Match AB announced yesterday that it will acquire Cigars International, headquartered in Bethlehem, Pennsylvania, in a move which will give Swedish Match its first direct-to-the-consumer channel. The transaction is being made by the parent company in Stockholm and not through either Swedish Match North America or General Cigar Holdings.

The action parallels the 2003 move by Altadis, S.A. to acquire J-R Cigars, the world’s largest cigar retailer with multiple retail stores in major markets, an enormous mail-order and Internet sales presence and a major wholesale operation called Cigars by Santa Clara. Altadis can acquire the remainder of the J-R Cigars shares it does not already own at the end of 2008.

For Swedish Match, buying Cigars International provides it with a small retail store presence (Cigars International has two retail locations), but a mighty catalog and Internet operation that in 2004 was shipping 250,000 packages a year to cigar smokers. Its clientele is highly attractive: a median age of only 40 years old and average household income of $110,000. A wholesale division, called Meier & Dutch, was launched last year.

Cigars International is a young company, founded in 1996 by Keith Meier and John DeMarco. By 2003, sales volume had reached more than $20 million on the strength of eight catalog mailings a year to a list of 400,000 customers and prospects. In July 2004, it received a major financial boost with a reported $12 million investment from the Chicago-based private equity investment firm Svoboda Collins LLC.

And the company was refinanced again in 2005 with $24.75 million in loans and a revolving line of credit of $3.25 million. The result? An even more aggressive marketing approach that has driven gross sales to around $50 million annually, making it one of the largest cigar sellers in the U.S., along with J-R Cigars and Thompson Cigar Company of Tampa, Florida.

Although investment banking advisors Harris Williams had been shopping Cigars International, according to one source, since April of this year, Swedish Match shopped around. Other major mail-order and Internet retailers were queried about their interest in selling to Swedish Match, but Cigars International was eventually chosen.

Said Meier, “We were seeking a new financial partner, and during the process there was strong interest in the company from a number of private equity companies, but ultimately Swedish Match AB won out instead. Fundamentally, it was the quality of their people, and most importantly their commitment to having CI operate autonomously – to continue doing exactly what has made us successful over the years.

“Over the past decade we've been determined to quietly build CI into one of America's top catalog and internet cigar dealers. As you know, we have a wide product selection and competitive prices, and through creative marketing and strong supplier relationships we've been fortunate to have developed a loyal customer base and reach ever deeper into the premium cigar market. Allying ourselves with Swedish Match AB was a natural fit which we believe will further strengthen the Cigars International brand among customers. Again, the best part is simply that we're going to keep doing the exact things we've always done - our commitment to getting better every day, to winning customers through great service, and to continue generating growth remains unchanged. But the advantage is, given Swedish Match AB’s global leadership in cigars, we will be in an even better position to accelerate that growth with a very strong partner behind us.” Several sources we spoke with, but who asked not to be identified, thought that Swedish Match’s appetite for acquisitions in the cigar marketplace has not yet been sated. Rumors about a possible purchase of Padron Cigars of Miami, Florida and/or Drew Estates continue to circulate.

It’s all part of a wave of cigar industry changes which have been keyed by the U.S. Supreme Court decision in Leggin Creative Leather Products, Inc. vs. PSKS, Inc. on June 28. In that case, the Supreme Court overturned a 1911 decision barring resale price maintenance and now allows manufacturers to set fixed retail prices.

The Leggin decision now allows companies like Swedish Match to create brands and sell them at prices it alone will set, free from worry about discounting either at the retail or mail-order/Internet level. And with Cigars International, it can now sell directly to the public.

Although not as important as establishing a direct-sale presence on the U.S. market, Swedish Match’s acquisition of Cigars International will also give it an advantage some time in the future when the U.S. trade embargo with Cuba is ended and Havana cigars are again able to be sold in the U.S. Although a titanic struggle over trademark rights will ensue when the embargo is lifted, Swedish Match currently holds the U.S. trademarks to Bolivar, Cohiba, Hoyo de Monterrey, La Gloria Cubana, Los Statos Deluxe, Partagas, Punch, Ramon Allones, Sancho Panza and others. By having a direct-sales outlet such as Cigars International, General will – if it can gain the rights to sell the Havana cigars for which it holds U.S. trademarks – be able to get into the market a bit more quickly than if it only had retail store distribution open to it.

The purchase price was not disclosed, but is expected to be reported in one or more of Swedish Match’s upcoming financial reviews.

New Black Pearl Morado fit for a King!
“Throughout history,” said La Perla Habana founder Doug Wood, “the color purple – Morado – has signified royalty. I believe Morado is the finest cigar we’ve made; with the first one I smoked, I knew it was perfect.”

Wood wanted a special cigar to commemorate the 10th anniversary of his Burlwood Cigar Company, creators of the La Perla Habana and Black Pearl brands, in 2005. He knew it had to be a blend he’d created that was keyed on a Cameroon wrapper and Nicaraguan-grown binder and filler leaves.

“We wish we had enough of this tobacco to produce several years’ worth of our new Black Pearl Morado (Purple) premium cigar,” explained Wood. But, the “Cameroon wrapper is in shorter supply than we expected, so we can only offer limited supplies of Morado in three shapes: Robusto (4 3/4 inches by 52 ring), Toro (6 x 50), and Torpedo (6 1/4 x 52).”

The Morado is made in the Torano Family factory in Esteli, Nicaragua and all three shapes will retail for $9 before local tobacco taxes when introduced in September. It’s part of Wood’s unique Black Pearl Lifestyle Collection, which includes the Black Pearl Rojo, Cobre and now Morado cigar lines, Black Pearl gourmet coffees and Black Pearl wines. Who needs anything else?
~ Rich Perelman

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