Following an announcement in January, Swedish Match and Scandinavian Tobacco Group (STG) on Monday signed the transaction agreement to form a new company with a core focus on cigars.

Swedish Match will contribute its entire cigar business with the exception of US mass market cigars, and will contribute its remaining pipe tobacco and accessories businesses. Denmark-based company STG will transfer all of its tobacco businesses (cigars, pipe tobacco and fine cut tobacco) into the new company. The new company will also include distribution of lighters and matches supplied by Swedish Match in relevant markets.
Closing of the transaction, which is subject to competition authority approvals, is expected to occur during the third quarter, 2010.
Swedish Match will hold 49 per cent of the shares in the new company, with the remaining 51 per cent of the shares to be held by STG’s shareholders. Jørgen Tandrup, currently chairman of STG, will become the chairman of the board and Conny Karlsson, bhairman of the board of Swedish Match will assume the role as deputy chairman for the new company. As previously disclosed, Anders Colding-Friis, CEO of STG will be the CEO of the new company.

The new company will have leading positions for US premium cigars, for European cigars, and strong positions in a number of other markets. Leading cigar brands will include Macanudo, Partagas (US), Punch (US) and La Paz, among others, from Swedish Match as well as Café Crème, Henri Wintermans, Colts, and Mercator, among others, from STG. Leading pipe tobacco brands will, include Borkum Riff and Half & Half from Swedish Match and Erinmore, Clan, and W.Ø. Larsen from STG.
STG will compensate Swedish Match with EUR 30 million to account for the shareholding and the relative differences in enterprise values on a cash and debt free basis. The cash consideration has been adjusted for exclusion of Swedish Match’s minority stake in Arnold André from the transaction.
Based on the Swedish Match and STG 2009 full year results, the new company would have had an annual turnover of approximately EUR 690 million, EBITDA of approximately EUR 140 million, and a volume of more than 2.5 billion cigars. The STG tobacco business normalized full year 2009 Sales and EBITDA were approximately EUR 320 million and EUR 70 million respectively, employing about 3,500 employees. For the full year 2009, the normalized Sales and EBITDA for the businesses to be contributed to the new company by Swedish Match were approximately EUR 370 million and EUR 70 milliom respectively, employing about 7,000 employees.(pi)