The Future of Lane

STG discusses plans for Lane acquisition.

Linda Abu-Shalback Zid, Senior Editor

SOBORG, Denmark--As Scandinavian Tobacco Group A/S (STG) awaits anti-trust approval on acquiring Lane Ltd. from Reynolds American Inc. (RAI), STG executive vice president, Christian Hother Sorensen, took time from his busy Denmark day to talk to Tobacco E-News about the company's plans.

Under terms of the transaction, expected to close in the first half of 2011, STG has agreed to pay $205 million in cash for Tucker, Ga.-based Lane. The deal, Sorensen said, is beneficial for both companies.

STG had divested its cigarette business in 2008 to focus on cigars, pipe tobacco [image-nocss] and roll-your-own fine-cut tobacco. "There's been a nice fit between Lane and Scandinavian Tobacco Group in all aspects," he said of Lane's brand portfolio, which includes Kite and Bugler fine-cut roll-your-own tobacco, Captain Black pipe tobacco and little cigars and Winchester little cigars.

Likewise, Reynolds CEO Susan M. Ivey said in a release that the Lane divestment will allow her company to focus on the cigarette, moist-snuff and modern smoke-free categories.

STG expects the acquisition to contribute earnings before interest, taxes, depreciation and amortization (EBITDA) of $45 million and sales volumes of 525 tons of pipe tobacco, 980 tons of fine-cut tobacco and 450 million little cigars.

Currently, STG's only U.S. presence consists of some pipe tobacco sales, with Swedish Match North America acting as distributor. Later this year, STG plans to create its own U.S. sales force to handle the Lane products. "So for the retailer, they would in the not-so-distant future be visited by a rep who focuses on the Lane products," Sorensen said.

"Until we have closed, we cannot act in the market. But of course we can start thinking about what we would like to do, and of course we already have the market knowledge of knowing where the biggest market potential is--and we have some ideas."

We do see potential within all three segments, putting renewed energy into the brands," he said adding that Lane's brands "have a good platform to start from." A U.S. sales force would also allow STG to launch new products and new brands here, he said.

The company also plans to focus on international sales of the Captain Black products. "We do see it as a brand with a lot of heritage in parts of the world," he said, listing the Middle-East, Africa and Russia. "It has some sales already, but we do believe we can increase it, and grow the brand further, both in pipe tobacco and little cigars."

Lane has about 110 employees at two facilities in Tucker--a manufacturing and office facility, and a leased warehousing facility. Under terms of the agreement, STG will take over Lane's facilities and expects to continue to operate them.

Winston-Salem, N.C.-based RAI is the parent company of R.J. Reynolds Tobacco Co.; American Snuff Co. LLC; Santa Fe Natural Tobacco Co. Inc.; and Niconovum AB.

Scandinavian Tobacco Group (STG) was established as a new company Oct. 1, 2010 as a result of a merger of the tobacco business of the former Scandinavian Tobacco Group A/S and the cigars and pipe tobacco business of Swedish Match AB (except its U.S. mass-market cigar business). STG is headquartered in Soborg, Denmark and has approximately 10,000 employees operating internationally. STG has manufacturing sites in 8 countries, sales companies in 15 countries and sells its products in more than 120 countries worldwide.