Imperial Brands PLC (“Imperial”) announces this week that it has agreed to the sale of its worldwide premium cigar businesses (“Premium Cigars”) to an investment consortia of individual investors in two distinct transactions for a total consideration of €1,225 million ($1.36 billion), which represents a multiple of 11.8x FY19 EBITDA on a standalone basis. The disposal reinforces Imperial’s focus on simplifying its business and realizing value for shareholders.
The sale multiple recognizes the luxury nature of the businesses’ products and their international growth profile. After adjusting for tax and other costs, the disposals are expected to realize net cash proceeds of around €1,094 million ($1.36 billion). The proceeds will be used for debt reduction and will reduce September 2019 pro-forma net debt to EBITDA leverage by c 0.2 times.
Joint Interim Chief Executives Dominic Brisby and Joerg Biebernick said:
“We are delighted to be able to announce the sale of Premium Cigars in the current challenging global environment. It has been a complex transaction involving joint venture partners and assets across multiple geographies and we would like to thank everyone involved for working so hard to get the deal agreed.
This disposal reinforces our strategic ambition of becoming a leaner and more agile organisation and the proceeds will realise value for shareholders by reducing debt as part of our ongoing focus on active capital management.
We believe we have found the right long-term owners for Premium Cigars; they are committed to investing in the business to maximise future growth opportunities and are well positioned to further develop operations internationally.”
The sale will take place in two transactions documented under two sale agreements: one for the USA business (“Premium Cigar USA”); and another for the Rest of the World business (“Premium Cigar RoW”).
In respect of the transactions:
Gemstone Investment Holding Ltd will acquire Premium Cigar USA for a total consideration of €185 million ($205 million). This transaction is subject to the fulfillment of certain conditions, including customary antitrust and other regulatory clearances.
Allied Cigar Corporation, S.L will acquire Premium Cigar RoW for a total consideration of €1,040 million ($1.15 billion). This transaction is subject to the fulfilment of certain conditions, including customary antitrust and other regulatory clearances.
The transactions are expected to close in the third quarter of calendar year 2020. The Premium Cigar RoW transaction includes the sale of the Dominican Republic handmade premium cigar factory which is expected to close in 2021.
Of the Premium Cigar RoW transaction consideration, ($97.6 million) will be deferred for 12 months from close and €69 million ($76.5 million) will be deferred and contingent upon transfer of the Dominican Republic factory.
The Premium Cigar business contributed £80 million ($100 million) of profit before tax in the year to 30 September 2019. The business comprises assets that are wholly owned as well as investments in a number of joint ventures, which results in a different accounting treatment for the two asset types:
Imperial is being advised by AZ Capital on the agreed sales of Premium Cigar USA and Premium Cigar RoW.
Premium Cigar US
Tabacalera USA, which is responsible for the business’ premium cigar operations in the US, the world’s largest premium cigar market, including:
- The assets and other property of Altadis USA, which is responsible for the distribution of premium cigars in the US;
- Leading online retail platforms, including JR Cigar, cigar.com and Serious Cigars;
- A specialist brick-and-mortar retailer, Casa de Montecristo, with 28 stores across the USA.
Premium Cigar RoW
Cuban premium cigar interests, including:
- A 50 per cent stake in Habanos S.A., which exports hand-made cigars from Cuba and is responsible for international marketing activities. Habanos products include world-renowned Cuban brands such as Cohiba, Montecristo and Romeo y Julieta.
- A 50 per cent stake in Altabana S.L., which is responsible for the distribution of Cuban cigars worldwide through its network of over 20 subsidiary distributors.
- A 50 per cent stake in Internacional Cubana de Tabaco, S.A., which is responsible for the manufacturing of Cuban premium machine-made cigars.
- A 50 per cent stake in Promotora de Cigarros, S.L., which manages the distribution of the Cuban premium machine-made cigar portfolio worldwide.
Other sales of premium cigar products through Tabacalera SA including:
- Exclusive distribution of Cuban handmade cigars in Spain;
- Non-Cuban premium handmade cigar sales operations outside the US, including Vegafina, the bestselling non-Cuban brand outside the US.
Premium cigar manufacturing facilities in Honduras and Dominican Republic.
The Dominican Republic factory manufactures both mass market cigars and premium cigars and will be physically separated to enable the sale of the premium cigar facilities. All employees, other than those involved with mass market cigars in the Dominican Republic factory, will transfer to the new owner Allied Cigar Corporation, S.L.