STOCKHOLM, Sweden -- Swedish Match AB has signed a letter of intent with Scandinavian Tobacco Group (STG) to form a company combining the tobacco businesses of STG with the premium and machine-made cigar businesses of Swedish Match (with the exception of the U.S. mass-market cigar business).
This follows a strategic review of Swedish Match and is consistent with the goals of becoming the global smokefree leader while developing the cigar business to be best in class, according to the company. The combined entity would also include the pipe tobacco and accessories businesses [image-nocss] of Swedish Match, as well as distribution of lights products in relevant markets.
"The letter of intent marks the intention of both parties to form a value enhancing business combination within the global cigar industry. Such a business combination would be complementary and synergistic, demonstrating Swedish Match's commitment to the cigar business and long-term value creation," said Lars Dahlgren, president and CEO of Swedish Match AB.
The combined entity would have leading positions for U.S. premium cigars, for European cigars, and strong positions in a number of other markets, the companies said in a press release. Leading cigar brands would include Macanudo, Partagas (U.S.), Punch (U.S.) and La Paz, among others, from Swedish Match, as well as Caf a Cr ame, Henri Wintermans, Colts and Mercator, among others, from STG.
Leading pipe tobacco brands would include, among others, Borkum Riff and Half & Half from Swedish Match, and Erinmore, Clan and W. a. Larsen from STG.
Swedish Match would hold 49% of the shares in the combined entity, with the remaining 51% of the shares held by STG. Anders Colding Friis, the CEO of STG, would assume the role of CEO of the combined entity.
In the letter of intent, a financial strategy for the combined entity has been agreed to, stipulating a net debt of two to three times EBITA, ensuring distribution of free cash flow and financial discipline for the combined entity. The letter of intent also includes minority protection clauses.
STG produces cigars, pipe tobacco and fine-cut tobacco, having divested its cigarette and snus businesses in 2008. STG is based in Denmark with production facilities in Belgium, the Netherlands, Denmark, Indonesia, the Dominican Republic, Nicaragua and Honduras.
The completion of this transaction is subject to due diligence by both parties and final transaction agreements, as well as bondholder and regulatory approvals. Signing is expected to take place during the first half of 2010 with completion as soon as possible thereafter.
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