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Pedro Perez—Former President, Tabacalera

A talk with the man behind Tabacalera, Spain's $7 billion tobacco company.

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Perez: Yes. All. We are a cigar friendly country.
CA: So if we were giving an award to the most cigar friendly country, perhaps outside of Cuba, we'd have to give it to you.
Perez: Sure.
CA: Could you perhaps discuss what happened three years ago when you took control of the Montecristo brand, and several others?
Perez: You know that after the Revolution in Cuba, the factories were intervened by the government, but it...
CA: I like the way you said they were intervened. Confiscated?
Perez: Technically that's right. Cubatabaco was producing and selling the trademarks of 16 brands. At the time, the value, the appreciation of the trademarks, was not like now, or 10 years ago. The former brand owners were aware of the value of the trademark, and they started some litigation. I think that was in the early '80s.
CA: Which brands were involved in the litigations?
Perez: Montecristo, Partagas, H. Upmann, Por Larrañaga, and La Gloria Cubana among others. We could see two potential problems with this. One was for the Cubans. They were using the trademarks without paying any royalties. Two, the distributors of the brands could also have a problem with having to pay royalties. This was why Tabacalera started negotiations with the owners to buy the trademarks. These negotiations developed in 1987 and ended in 1990.
CA: These were the owners of the trademark outside of the U.S. and outside of Cuba?
Perez: Correct.
CA: That's the companies of Cifuentes International and Consolidated; they have a company together called Cuban Cigar Corp.(CCC). So Tabacalera now owns the trademark for Montecristo and these other brands all over the world with the exception of Cuba, the Dominican Republic and the U.S.?
Perez: Yes.
CA: This deal came through in 1991?
Perez: Yes.
CA: How much did it cost you?
Perez: I don't wish to say.
CA: I heard it was something like $10 million?
Perez: (He smiles.)
CA: It would seem to me that this was a bargain--today. Maybe not five years ago, but today. I mean, don't you think it is probably worth two or three times that, considering what's happened in the marketplace?
Perez: It depends. I think the price was appropriate, because the value of a trademark only exists if you have a brand behind that.
CA: So let me ask you this. When Montecristo is sold in Switzerland, or it's sold in the U.K. or Canada, do you get a royalty?
Perez: No. Our agreement with Cuba is the following: They can use the trademark as if they were the owner. I mean, they can use the trademark for the handmade Cuban production without paying any royalty. In return, they provide us with the best tobacco leaf for our own productions.
CA: What about the mini-Montecristo?
Perez: Before this problem with trademarks, SEITA [France's tobacco monopoly] received a license from the Cubans to produce the mini-Montecristo. That is finished. We are now producing the mini-Montecristo.
CA: Is that why SEITA is coming out with the mini-Cohiba?
Perez: Yes. In compensation for them losing the mini-Montecristo, Cuba signed a license for mini-Cohiba with the French.
CA: If the U.S. embargo against Cuba ends, will that alter your brand ownership agreement with Cuba?
Perez: This is the agreement at this moment. In the future, when the embargo is lifted, we can enter into a new deal.
[Editor's note: This interview took place on Sept. 23. The following week, the deal between Tabacalera and General Cigar collapsed after both sides failed in the final negotiations to agree on issues of control of the company. Tabacalera refused to change the original terms which would have given the Spanish company a 51 percent stake in General Cigar. At the time of the interview, the deal was still on.]
CA: Let's talk about your deal with General Cigar. Did you approach General Cigar, or did they approach you?
Perez: No, we approached them.
CA: What was it that caused you to be interested in this business venture?
Perez: As you know, we have a position in the European Union and a lot of potential in this market. We have a subsidiary, Companias Philippinas in the Far East. We were missing a third leg to cover or to be present or to be involved in the three big markets for cigars.
CA: Europe, the Far East and North America.
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