Date: September 2019
Author: Inspector Z

Imperial shareholders urge sales of cigar division. A few months ago, Imperial Brands announced that they are planning to sell all their premium cigar activities. From their factory in the Dominican Republic, Tabacalera de Garcia, to their retail businesses under the Montecristo name in the United States. Imperial Brands also owns the second-largest cigar retailer in the world, JR Cigars. And the company wants to sell its shares in Habanos and distributors of Cuban cigars worldwide. Premium cigars are only a small portion of Imperial Brands’s activities. Experts say that the sale could bring in 1.3 to 2 billion US dollars. Imperial Brands hopes for 2.5 billion dollars.

The value of Imperial Brands shares have been declining for the last few years and are currently half of what they were. Major shareholders are urging for a change in leadership. They are not pleased with the slow speed of the changes. Shareholders want Imperial Brands to focus more on vaping and non-combustible products. According to shareholders, the current management team isn’t fit for the fast-changing world of tobacco and are stuck in the ‘old world’ style thinking. Chairman Mark Williamson, who’s been in charge for 12 years, will be replaced soon.

What is for sale?

Altadis owns a factory in the Dominican Republic, Tabacalera de Garcia. That’s one of the largest cigar factories in the world. They own the following cigars: Montecristo, Romeo y Julieta, H. Upmann, Trinidad, Saint Luis Rey, Juan Lopez, Por Larranaga, Aging Room, La Boheme, Henry Clay, Casa de Garcia, VegaFina, Oliveiros, Las Cabrillas, Primo del Rey, Omar Ortez, and Te-Amo according to the Altadis USA website. These are all Non-Cuban cigars, and the ones with Cuban names can only be distributed in the United States. 

The retail side of Imperial Brands is also up for grabs. Those are the famous online retailer JR Cigars. That’s the second-largest cigar retailer in the world. Plus all the Casa de Montecristo stores in the United States. Over the last few years, Altadis USA has opened more Casa de Montecristo stores, that are now part of the sale. Altadis also has a joint venture with the Flor de Copan factory in Honduras.


Ministry of Cigars Imperial shareholders urge sales of cigar division

Imperial Brands is involved in the Cuban cigar trade as well. They own 50% of Habanos, the other 50% is owned by Cubatabaco, a state-owned company. But don’t think that by buying Imperial Brands you will have a say of Cuban cigar production. Habanos is just the marketing and distribution leg. They don’t grow tobacco and don’t produce cigars, as explained in our earlier article ‘what is Habanos?’. So what is up for sale, is 50% of the distribution rights for Cuban handmade cigars worldwide. 

But that’s not all. Habanos only sells to local distributors. And of the 36 official Habanos distributors in the world, Imperial has stakes in 22. The stakes range from 25% to 100%. The complete list:

100% Stake in Tabacalera (Spain excluding the Canary Islands)
100% Stake in Seita (France but only for Jose L. Piedra & Quai D’Orsay)
99% Stake in Societe Marocainse Des Tabacs (Morocco)
50% Stake in Dalso (Dominican Republic)
50% Stake in Puro Tabaco (Argentina, Chile)
50% Stake in Infifon (China excluding HongKong and Macau)
50% Stake in Coprova (France, Monaco, Algeria)
50% Stake in Cuba Cigar (Canary Islands)
50% Stake in Cubacigar Benelux (Netherlands, Belgium, Luxembourg)
50% Stake in Empor (Portugal)
50% Stake in Habanos Nordic (Iceland, Finland, Denmark, Sweden, Norway, Estonia, Latvia, and Lithuania)
50% Stake in Top Cigars (Russia)
30% Stake in Diadema (Italy, Vaticano, and St. Marino)
27½% Stake in 5th Avenue (Germany, Austria, and Poland)
25% Stake in Caribbean Cigar Corporations (Panama, British Virgin Islands, St. Barthelemy, St. Kitts and Nevis, Surinam, Guadaloupe, St. Lucia, Trinidad and Tobago, Turks and Caicos Islands, Jamaica, St. Marteen, St. Martin, Maria Galarte, St. Vicent and the Grenadines, Bonaire, Haiti, St. Eustatius, Antigua and Barbuda, Dominica, Barbados, Curacao, Guyane Francaise, Anguilla, Montserrat, Martinique, Grenada, Aruba, Bahamas, Bermuda, Grand Caiman, El Salvador, Belize, Honduras and Guatemala)
25% Stake in Havana House (Canada, St Pierre, and Miquelon)
25% Stake in Importadora y exportadora de puros y tabacos (Mexico)
25% Stake in Phoenicia (Lebanon, Syria, Qatar, Bahrein, United Arab Emirates, Saudi Arabia, Iran, Irak, Jordania, Oman, Kuwait, Pakistan, Afganistan, and Yemen. Continental Africa (except Algeria, Marruecos and África del Sur): Angola, Benin, Botswana, Burkina Faso, Burundi, Cape Verde, Cameroon, Chad, Comoros, Côte d’Ivoire, Egypt, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Equatorial Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritius, Mauritania, Mozambique, Namibia, Nigeria, Niger, Central African Republic, Democratic Republic of Congo, Congo, Rwanda, Western Sahara, São Tomé and Príncipe, Senegal, Seychelles, Sierra Leone, Somalia, Sudan, South Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Djibouti, Zambia, Zimbabwe)
25% Stake in Pacific Cigar Company (Hong Kong, Japan, Singapore, Philippines, Malaysia, Australia, New Zealand, Indonesia, Fidji, Brunei, Papua New Guinea, Sri Lanka, Bangladesh, Thailand, Cambodia, South Korea, Taiwan, Viet Nam, Laos, Myanmar, Mongolia, Macau, Maldives, New Caledonia, French Polynesia, Vanuatu, North Korea, Bhutan, Solomon Island, Kiribati, Nauru, Samoa, East Timor, Tonga, Tuvalu and Palau and Marshall Islands)
25% Stake in Maori Tabacs (Andorra)
25% Stake in Hunters & Frankau (the United Kingdom, Channel Islands, Gibraltar and Republic of Ireland)
25% Stake in Intertabak (Switzerland and Liechtenstein)

So what it comes down to, is that this part of the deal offers nothing physical. No tobacco, no plantations, no factories, nothing. Just 50% of the marketing and distribution rights for Cuban premium handmade cigars. And shares, mostly minority shares, in most of the local Hababos distributors worldwide. That has a value, but there is no physical assurance so it all depends on the contract between Cubatabaco and Habanos to determine the value of the Habanos package. As outsiders, we won’t know the deal between Imperial Brands and Cubatabaco. Therefore it’s hard to determine if it’s a good buy for the new owner.

Who will buy the package?

There are only a handful of big players in the premium cigar industry that could afford to buy the package as a whole. But the package isn’t that interesting. And all have a reason not wanting to buy the whole package. One of the major players that have the funds and the knowledge to acquire the premium cigar division of Imperial Tobacco is Scandinavian Tobacco Group. Yet, with the current US government threatening to punish companies that do business with Cuba, it’s a big risk to be involved in Habanos. And they might become too much of a monopoly for the Non-Cuban cigars, triggering the Federal Trade Commission in the United States to a response.

Ministry of Cigars - Imperial shareholders urge sales of cigar division

As for China National Tobacco Company (CNTC), the Non-Cuban part isn’t very appealing. Non-Cuban cigars aren’t very popular in China, the Chinese market is focused on Cuban cigars. With the current trade war, it’s not an interesting deal for them. So it is our expectation that the package will be split up into several different sales. And then CNTC is one of the big contenders for the Habanos and distributors package. Imperial Brands and CNTC are already working together in a joint venture.

The Chinese company claims to produce 250 million premium cigars a year in their factories in China. So buying knowledge can be in their advantage. China is the 3th biggest country in the world, with many microclimates. Farmers with generations of tobacco experience can find the right places to grow tobacco in China, and help the Chinese tobacco to become better. Then Chinese cigars might be able to compete with cigars from the Caribbean.

What will happen, and who will buy what is something that the future will tell us. But for the cigar industry and cigar media, this is an exciting sale to watch. We will keep you posted.

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