Imperial sells cigar brand for $1.33bn

July 2020 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

July 2020 Issue

As part of its plan to become a “leaner and more agile organisation”, multinational tobacco company Imperial Brands PLC is to sell its worldwide premium cigar business Premium Cigars for £1.1bn, with the proceeds to be used to reduce its debt. The disposal is also intended to reinforce the company’s focus on simplifying its business and realising value for shareholders.

The sale is to an investment consortia of individual investors and will take place across two transactions: one for the US business – Premium Cigar USA – and another for the Premium Cigar rest of the world (RoW) business.

Investor Gemstone Investment Holding Ltd will acquire Premium Cigar USA for a total consideration of £162m. This transaction is subject to the fulfilment of certain conditions, including customary antitrust and other regulatory clearances.

The second investor, Allied Cigar Corporation, S.L. will acquire Premium Cigar RoW for a total consideration of £912m. This transaction is also subject to the fulfilment of certain conditions, including customary antitrust and other regulatory clearances.

The sale of Premium Cigars in two distinct agreements recognises the luxury nature of the businesses’ products and their international growth profile. Proceeds from the sale will be used for debt reduction and will reduce pro-forma net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) leverage by 0.2 times. Following the sale, Imperial plans to invest in new vaping products, widely seen as the new growth frontier as rates of traditional smoking decrease.

The transactions are expected to close in the third quarter of 2020.

“We are delighted to be able to announce the sale of Premium Cigars in the current challenging global environment,” said Dominic Brisby, joint interim chief executive of Imperial. “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,” he continued. “The proceeds will realise value for shareholders by reducing debt as part of our ongoing focus on active capital management.”

The Premium Cigar RoW transaction includes the sale of the Dominican Republic handmade premium cigar factory, which is expected to close in 2021. Furthermore, £77m of the Premium Cigar RoW transaction will be deferred for 12 months from close and £61m will be deferred and contingent upon transfer of the Dominican Republic factory.

Headquartered in the UK, Imperial is a FTSE100 fast moving consumer goods (FMCG) business widely recognised on the global stage. The company, which makes 340 million cigars a year, generates over £30bn revenue and employs more than 30,000 people worldwide.

Advising Imperial on the agreed sales of Premium Cigar USA and Premium Cigar RoW is AZ Capital.

“We believe we have found the right long-term owners for Premium Cigars,” said Joerg Biebernick, joint interim chief executive of Imperial. “They are committed to investing in the business to maximise future growth opportunities and are well positioned to further develop operations internationally.”

Fraser Tennant