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The Two Billion Cigar Baron

Altadis U.S.A. Chief Theo Folz celebrates a unique perspective developed over four decades in the cigar business.
David Savona
From the Print Edition:
Tyson vs. King, Jan/Feb 04

(continued from page 2)

"I was stunned," says Folz. He turned down Perelman, citing obligations to Bayuk. Perelman was insistent. "It seemed like the more I told him no, the more he wanted me," says Folz.

Perelman didn't get Consolidated, or Folz, but in 1984 he called on Folz again. Just prior to the meeting, Folz heard the hot rumor in the business -- Perelman was again a suitor for Consolidated, which was owned by a management group. When Folz met Perelman, the former Bayuk executive was direct. "I said, 'I am not going to go work for Consolidated Cigar.' His face dropped. He said, 'How do you know about that?' I said, 'Ronald, there's no secrets in this business.'"

Perelman bought Consolidated for $118 million in July 1984. By August 1 Folz, finally swayed by the Perelman pitch, was in charge.

"They weren't making any money to speak of, but they were big," says Folz. "I just didn't have any real desire to go to New York, and I knew Consolidated had lots of problems. To tell you the truth, if I had known how bad they were, I doubt if I'd have come. We were not financially bankrupt, but we were functionally bankrupt. There was a very poor esprit de corps. Very poor products. Very little direction. But we ended up finding who the good people were, getting rid of the ones that didn't want to work. And turned it into what I think is the best cigar company in the world today."

Moving to Consolidated not only put Folz at the helm of America's biggest cigar company, it introduced him to the premium end of the cigar business. His 1984 walk through the company's plant in La Romana, Dominican Republic, was his first time in a handmade cigar factory. "I've never seen anybody go through a handmade cigar factory and not come out amazed -- even a nonsmoker," says Folz.

Folz's father and first mentor in the cigar business, Monte, makes a sales call on Katz Drug Store, in Memphis, Tennessee, in 1966.
Still, Folz focused on machine-made cigars. "In those days, mass-market was like 93 percent of our sales," says Folz. One of his early moves was addressing quality issues at the company's Puerto Rico factory. He grilled the plant manager on his high reject rate. The manager explained the problem: his boss allowed him only the precise amount of filler tobacco that the machines were supposed to require to make a good cigar, but the machines were ancient and often slightly out of adjustment, which caused some of the cigars to be filled improperly. Folz authorized an additional 5 percent of tobacco -- a considerable cost in a tight-margin business -- and the reject rates declined.

Consistency is key in the cigar business, whether it be in mass-market cigars made by machine or premium cigars crafted by hand. Folz, an avid fisherman, has a buddy with whom he fishes in the Bahamas who won't smoke the free handmades that Folz brings. "I try to bring him cigars. No matter what I bring him it doesn't matter, 'cause he likes Swisher Sweets," says Folz, talking about one of the competition's cigars. "And I think the secret of holding him as a Swisher Sweet customer or a Phillies Cheroot customer is we try to make the same cigar Friday that we make on Monday. It's not that easy when you deal with products that grow in the ground, and they vary from crop to crop."

Folz looks upon each cigar as a never-ending evaluation by consumers. "If there's 25 in a box, there's 25 tests there. So I think we're in one of the toughest businesses in the world," he says.

Focusing on detail and knowing the business -- including that of his competitors -- has served Folz well. In 1986, he took a call from Charlie Mullen, the president of American Cigar Co., which he had tried to buy, unsuccessfully, in 1984. "He said, 'Theo, do you have any money?'" Folz was able to close on the deal in 17 days for $13.7 million. "We didn't do any due diligence. The due diligence was five pieces of paper. We didn't visit any factories, we didn't check any tobacco, we didn't meet with any of their people, we bought it." It gave Consolidated the prominent Antonio y Cleopatra brand, which added a couple hundred million cigars to Consolidated's annual production. "It didn't matter what we paid for it, as long as we had that brand," says Folz. The deal also included La Corona and Roi-Tan. That same year, he acquired Milton Sherman Tobacco Co. and the pipe tobacco brands of Iwan Ries & Co.

"We've always been a net buyer of businesses," says Folz. He regrets missing one, Villazon & Co., and its renowned cigarmaker, Frank Llaneza. The maker of Punch and Hoyo de Monterrey was acquired by General Cigar in 1997. "The one acquisition that I should have made, that slipped through my fingers, was Villazon. Because not only would you get a great business, but you would get one of the greatest cigarmakers in my lifetime."


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