Parent Companies of Macanudo, C.A.O. Plan Merger

The makers of Macanudo and C.A.O. cigars are joining forces. Today, the European parent companies of both cigar brands signed a letter of intent to merge their cigar and tobacco operations, creating a new joint venture the companies said would be "one of the largest cigar companies in the world." Anders Colding Friis, chief executive officer of Scandinavian Tobacco Group, would run the new company, and the deal could close by June.

Scandinavian Tobacco, headquartered in Søborg, Denmark, and Swedish Match AB of Stockholm, Sweden, announced their intent to form a new cigar company by merging their cigar and tobacco operations. If the deal moves ahead as described, Scandinavian Tobacco will emerge as a 51 percent owner of the new operation, which will combine the cigar, pipe tobacco and fine cut tobacco business of Scandinavian Tobacco Group with the tobacco assets of Swedish Match, including General Cigar Co., the company'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 will own 49 percent of the new venture. The company 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 will pay Swedish Match about 40 million Euros ($57 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.