July 19, 2007
Imperial boss to woo Castro over bid for cigar company
Robin Pagnamenta
Gareth Davies, chief executive of Imperial Tobacco, will travel to Cuba
to woo Fidel Castro's Government after a board recommendation of the
group's €12.6 billion (£8.5 billion) offer to acquire Altadis, the
Franco-Spanish tobacco company, announced yesterday.
Mr Davies hopes to secure Cuban government support for the deal and
persuade it not to exercise a change of control clause that it holds
over Corporación Habanos, a 50-50 joint venture which Altadis operates
in Cuba that owns the country's most famous cigar brands, including
Montecristo, Cohiba, Romeo y Julieta and Partagas.
Mr Davies said yesterday the proposed entry of Habanos into 50 per cent
British ownership would represent a "great addition" to Imperial's
existing portfolio of cigarette brands, including Lambert & Butler,
Superkings and Embassy.
He said he planned to visit Cuba "in the not too distant future" with
Antonio Vázquez, the Altadis chief executive, who will retain a role in
the new organisation, assuming that Imperial's €50 per share offer is
approved by shareholders.
Mr Davies, who will continue to head the enlarged group from Imperial's
headquarters in Bristol, is expected to meet with Habanos executives as
well as senior figures in the Castro administration.
"We are hopeful that the change of control clause will not be
exercised," Mr Davies said.
"We hope this joint venture will continue to go from strength to
strength – it's a business we plan to invest in."
Mr Davies said he saw considerable opportunities to market Habanos
"luxury brands" in the Far East, Eastern Europe and the former Soviet
Union, and predicted that there would be "considerable upside" in the
event of an end to a US trade embargo against Cuban products.
Altadis, which also owns cigarette brands such as Gitanes, Gauloises and
Ducados, is the world's largest cigar group and also owns non-Cuban
mass-market cigar brands such as Phillies, Backwoods and Dutch Masters.
The company's cigar business generated €888 million in sales last year
or 22 per cent of Altadis's €4 billion of total sales.
The bulk of the Madrid-based operation's sales are in cigarettes, which
generated 43 per cent of revenues last year.
Logista, its distribution arm, accounted for the remainder, but Imperial
is believed to be considering a sale of this business. A range of
private equity firms, including CVC, PAI, Cinven and Carlyle Group, are
understood to be interested.
Mr Davies said that there were significant opportunities for
cross-selling both companies' cigarette brands in new markets, and
extending them with the launch of slim or extra long varieties.
He said he hoped the combination would allow for annual cost savings of
€300 million.
The takeover, to be funded with a mixture of debt and a £5 billion
rights issue, will cement Imperial's position as the fourth largest
player in the global tobacco business after Philip Morris International
– the US owner of Marlboro – Lucky Strike-owner British American
Tobacco, and Japan's JTI, which recently acquired Britain's Gallaher.
The proposed new group would also have a stronger presence in markets
such as Morocco, Spain, France, Russia and Germany.
A spokeswoman for CVC Capital Partners, which had earlier submitted a
€50-per-share bid of its own only to struggle raising finance, said the
group would adopt a wait and see approach.
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2100099.ece
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