(Reuters) – Imperial Brands (IMB.L) is withdrawing from the premium cigar business to focus on vaping, with a 1.23 billion euro ($1.33 billion) sale of hand-rolled makes including Cohiba and Montecristo which will help it pay down debt.
FILE PHOTO: Montecristo cigars are on display in a tobacco store in Vienna, Austria, May 8, 2017. REUTERS/Heinz-Peter Bader/File Photo
The sale to private buyers includes Imperial’s 50% stake in Cuba’s official exporter Habanos, a unit of state-owned tobacco company Cubatabaco, which gives it rights to sell prestige brands Cohiba, Montecristo and Romeo y Julieta in 150 countries.
Imperial will retain its machine-made cigar business, whose most popular brand is Backwoods, which only constitutes a small proportion of its overall revenues. The firm entered the premium cigar business in 2008 with the acquisition of Spain’s Altadis.
For Imperial, the sale is part of its plan to divest assets worth 2 billion pounds by May 2020 to pay back about 12 billion pounds in debt and invest in new vaping products, seen as the new growth frontier as rates of traditional smoking fall away.
“This disposal reinforces our strategic ambition of becoming a leaner and more agile organisation,” joint interim chief executives, Dominic Brisby and Joerg Biebernick, said.
The maker of Winston and Gauloises Blondes cigarettes said the sale will be in two parts, with Gemstone Investment Holding buying its U.S. unit for 185 million euros and Allied Cigar Corp buying the rest for 1.04 billion euros.
Imperial did not disclose further details about the buyers of the premium cigars business, which it has been trying to sell since late 2018.
The business, which makes 340 million cigars a year, generated sales of over 300 million pounds and 80 million pounds in profit before tax in the year to September 2019.
After accounting for tax and other costs, net cash proceeds from the sale will amount to about 1.09 billion euros, which will be used to reduce pro-forma net debt to EBITDA leverage by about 0.2 times, the company said.
AZ Capital is advising Imperial Brands, whose stock was up 3.3% to 1,597.6 pence at 1115 GMT.
Reporting by Siddharth Cavale and Samantha Machado in Bangalore; Editing by Aditya Soni, Saumyadeb Chakrabarty and Alexander Smith