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Swedish Match Has Signed a Letter of Intent

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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. The Combined Entity would also include the pipe tobacco and accessories businesses of Swedish Match, as well as distribution of lights products in relevant markets.

Based on the Swedish Match and STG 2008 full year results, the Combined Entity would have had an annual turnover of approximately 670 MEUR and an EBITDA of approximately 125 MEUR and a combined cigar volume of more than 2.5 billion cigars. The Combined Entity would have leading positions for US premium cigars, for European cigars, and strong positions in a number of other markets. Leading cigar brands would 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 would, among others, include Borkum Riff and Half & Half from Swedish Match and Erinmore, Clan, and W.Ø. Larsen from STG.

Swedish Match would hold 49 percent of the shares in the Combined Entity, with the remaining 51 percent of the shares held by STG. Anders Colding Friis, the CEO of STG, would assume the role of CEO of the Combined Entity. On the basis of preliminary valuations, which are subject to due diligence by both parties, STG would compensate Swedish Match by approximately 40 MEUR to account for the planned shareholding and the relative differences in enterprise values on a cash and debt free basis. 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 headquartered in Denmark with production facilities in Belgium, the Netherlands, Denmark, Indonesia, the Dominican Republic, Nicaragua and Honduras.

The STG tobacco business normalized full year 2008 sales and EBITDA were approximately 310 MEUR and 60 MEUR respectively, employing about 3,400 employees. For the full year 2008, the normalized sales and EBITDA for the businesses to be contributed to the Combined Entity by Swedish Match were approximately 360 MEUR and 65 MEUR respectively, employing approximately 7,000 employees. For the first six months of 2009 the corresponding normalized figures for Swedish Match were approximately 180 MEUR and 36 MEUR respectively.

“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 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. Please note that there can be no assurance as to whether the transaction will be completed.

For additional information in this release please go to BusinessWire.com.

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Gary Korb

Gary Korb

Executive Editor

Gary Korb has been writing and editing content for CigarAdvisor.com since its debut in 2008. An avid cigar smoker for over 30 years, he has worked on the marketing side of the premium cigar business as a Sr. Copywriter, blogger, and Executive Editor of Cigar Advisor. A graduate of the Newhouse School of Public Communications at Syracuse University, prior to his career in the cigar business, Gary worked in the music and video industry as a marketer and a publicist.

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