$1.3 Billion Deal: Habanos Sell Out Amid COVID-19 crisis

The industry was expecting an announcement in Dortmund last September. Then there was that intense discussion we had with a few colleagues back in February in Havana during the Habanos festival, about whether Imperial could get above the $1.3 billion deal. Reality is that British tobacco giant Imperial Brands PLC finally dropped its bombshell on the cigar industry amid the COVID-19 crisis by announcing the $1.3 billion-sale (€1,225 billion) of its worldwide premium cigar businesses “Premium Cigars” to investment consortia of individual investors. The objective? Reinforcing the company’s focus on simplifying its business and reducing its debt.

This year has been one of big changes for Imperial; back in February, the company appointed Stefan Bomhard as its new CEO, replacing 20-year veteran Alison Cooper who announced last October that she would be stepping down. 

Despite the challenging current global economy, the sale, which occupied joint venture partners and assets across the world for months, is expected to close in Q3 of 2020 and will take place in two transactions: one for Imperial’s USA business “Premium Cigar USA”, and the other for its Rest of the World business “Premium Cigar RoW”. According to the company, both its businesses generated $99 million (€91,8 million) of profit before tax for the year, till 30 September 2019.

Joint Interim Chief Executives Dominic Brisby and Joerg Biebernick believe they “(…) have found the right long-term owners for Premium Cigars; they are committed to investing in the business to maximize future growth opportunities and are well positioned to further develop operations internationally.”

These “long-term owners” will de-facto obtain well-known names such as Cohiba, Montecristo, Romeo y Julieta and JR Cigar through their manufacturers, retailers or cigar manufacturing facilities.

By acquiring Premium Cigar USA for $200 million (€185 million), Gemstone Investment Holding Ltd. will take over Tabacalera USA, which is responsible for the business’ premium cigar operations in the US, housing within its group assets and other properties of Altadis USA, distributor of premium cigars in the US; prime US cigar retailer JR Cigar, cigar.com, Serious Cigars and other online retail platforms; brick-and-mortar retailer Casa de Montecristo; the exclusive distribution of Cuban handmade cigars in Spain; and the sales operations outside the US of non-Cuban premium handmade cigars, including Vegafina, a bestselling non-Cuban brand outside the US.

The other key player, Allied Cigar Corporation S.L, will purchase Imperial’s Premium Cigar RoW for $1.13 billion (€1,040 million), in an agreement that incorporates: 50% of Havana-based Habanos S.A., famous exporter and marketer of Cuba’s handmade cigars including the beloved (and almost every cigar-smoking beginner’s first choice) Cohiba, Montecristo and Romeo y Julieta, and its high-end cigar store and lounge concept Casa Del Habano; a 50% stake in Spain’s Altabana, S.L., the distributor of Cuban cigars worldwide through its network of over 20 subsidiary distributors; 50% of Internacional Cubana de Tabaco, S.A., which heads the manufacturing of Cuban premium machine-made cigars; and a 50% stake in Madrid-based Promotora de Cigarros, S.L., which manages the worldwide distribution of various premium machine-made Cuban cigars.

Premium Cigar’s manufacturing facilities in Honduras and the Dominican Republic will undergo big changes. The DR factory, which manufactures both mass market cigars and premium cigars, will be physically separated to enable the sale of the premium cigar facilities. All employees, that aren’t involved with mass market cigars in this factory will transfer to the new owner Allied Cigar Corporation, S.L.

Imperial has confirmed that the “disposal reinforces [its] strategic ambition of becoming a leaner and more agile organization and the proceeds will realize value for shareholders by reducing debt as part of [its] ongoing focus on active capital management.”

So far, it has been said that Fernando Domínguez, premium cigar director of Imperial Brands, will continue to run Imperial’s premium cigar division under the new ownership, while U.S. operations are still overseen by president and CEO of Tabacalera USA Javier Estades, with Rafael Nodal, owner of the Aging Room brand of cigars, will keep heading product capability for Tabacalera USA.

That said, we’re curious to find out if things will change, whether on the operations side or in product quality and activities.

Last but not least, what is the future of Cuban cigars? More unavailability of limited editions and a price increase? More best selling cigars out of stock? Or will the market be relaxed, allowing cigar aficionados to enjoy more and better cigars?