Parent Companies of Macanudo, C.A.O. Form Joint Venture

The makers of Macanudo and C.A.O. cigars have signed the papers to bring their companies together. Today, Scandinavian Tobacco, headquartered in Søborg, Denmark, and Swedish Match AB of Stockholm, Sweden, signed a joint venture to merge their cigar and tobacco operations. The deal is expected to close in the third quarter, creating what the companies say will be "one of the largest cigar companies in the world," with annual sales of more than 2.5 billion cigars.

Anders Colding Friis, chief executive officer of Scandinavian Tobacco Group, is going to run the new company, and Scandinavian will own 51 percent of the venture.

The deal has been in the works since January, when the two parties signed a letter of intent to merge.

The new company will consist of the cigar, pipe tobacco and fine cut tobacco business of Scandinavian Tobacco Group and the cigar and tobacco assets of Swedish Match, including General Cigar Co., Swedish Match's premium cigar unit, as well as its remaining pipe tobacco and accessories businesses. The new company would have annual production of more than 2.5 billion cigars and have annual sales of nearly 700 million euros ($1 billion).

Swedish Match is not contributing its mass-market cigar business to the venture, which includes such machine-made brands as White Owl, Garcia y Vega, and La Paz.

The deal also includes Swedish Match's highly successful retail arm, Cigars International.

Scandinavian Tobacco was originally to pay Swedish Match about 40 million Euros, but the final deal calls for Scandinavian to pay Swedish Match 30 million Euros ($40 million) to compensate the company for valuation differences.

Scandinavian Tobacco's cigar brands include the premium C.A.O. brands, including C.A.O. La Traviata, C.A.O. Lx2 and many others, plus mass-market Café Crème, Henri Wintermans, Colts and Mercator. Swedish Match owns General Cigar Co., makers of some of the world's biggest premium cigar brands, including Macanudo, La Gloria Cubana, Punch, Partagas and many others.

For more on this story, see tomorrow's Cigar Insider.