Swedish Match—once one of, if not the most important company in the collective cigar business—has announced that it will exit the cigar business as early as late next year.
Today, it announced that it is planning on spinning off its cigar business into a separate company and will focus on non-combustible tobacco products. It says the move could come as early as the second half of 2022.
The move will have no effect on any premium cigar brands, as Swedish Match exited the premium cigar business in late 2017 when it sold its stake in Scandinavian Tobacco Group. Its current cigar portfolio is made up of various mass-market brands including 1882, Game Garcia y Vega, and White Owl.
Swedish Match says that it sold “more than 1.9 billion (cigars)” last year, generating $493 million in revenue. Furthermore, it says that sales were up 25 percent in the first six months of 2021 compared to 2020.
“The cigar business continues to perform very well and is seeing positive industry dynamics, which we believe will make it an attractive stand-alone company, balancing strong cash flow generation with attractive growth,” said Lars Dahlgren, ceo and president of Swedish Match, in a press release. “The new cigar company will have the ability to explore a wider scope of growth opportunities within its autonomous and focused strategic agenda and to establish efficient and tailored operational and legal structures, geared for long-term value creation. Subject to market conditions, we expect that the new stand-alone cigar business, with its strong cash flow profile, could be capitalized at a higher level of leverage than has been the case for Swedish Match historically, which would create the opportunity for Swedish Match to use financing proceeds upon separation to further enhance shareholder returns. Until a separation is complete, Swedish Match will continue to operate as a single company and will continue business as usual for our customers and employees.”
As of now, few details have been announced about the new company. Swedish Match says it is being advised by Goldman Sachs.
Swedish Match entered the premium cigar business in 1999. That year, it first purchased the mass market business of General Cigar Co., then owned by the Cullman family, which is how it acquired the Garcia y Vega and White Owl brands. Later that year, it purchased El Credito Cigars—makers of La Gloria Cubana—from Ernesto Perez Carrillo Jr.
The next year, it acquired 64 percent of General Cigar Co. from the Cullman family and purchased the remaining 36 percent in 2005. At the time, it gave Swedish Match the rights to Macanudo, as well as the U.S. rights to Cohiba, Hoyo de Monterrey, Partagas, Punch and other brands. The deal also included factories in the Dominican Republic and Honduras, 1,100 acres of farmland in Connecticut and Club Macanudo.
In 2007, Swedish Match acquired Cigars International, the Pennslyvania-based entity that is the largest premium cigar retailer in the world.
Swedish Match’s exit from the cigar business began in 2009 when it was announced that it would merge its premium cigar businesses with Skandinavisk Holding A/S, better known as Scandinavian Tobacco Group (STG). STG owned some mass market and pipe brands along with CAO and cigar factories in Honduras and Nicaragua. In 2010, the merger was executed and Swedish Match received 49 percent of the new STG along with $30 million.
It created a company with over 9,000 employees, $1 billion in annual revenue and an estimated 30 percent of the U.S. premium cigar business.
The merger included a standstill agreement that prevented either party from modifying its stake in STG until Oct. 1, 2014. After a few delays, STG went public in February 2016 reducing Swedish Match’s share in the company to 31.2 percent. Over the course of the next 21 months, Swedish Match reduced its stake in STG, selling its last shares that November.