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« Heard in the Humidor
For the week of November 12-16, 2007
Los Angeles – Altria Corporation is the world’s largest tobacco company. It had annual revenues of $74.9 billion and a gross profit of $32.8 billion in 2006. It has cash on hand of $7.31 billion. Its business is primarily cigarettes, with a minor share of Miller Brewing Company, and sells well-known cigarette brands including Marlboro, L&M, Parliament and Virginia Slims. Now it’s in the cigar business. Big-time. Altria announced on November 2 that it would buy John Middleton, Inc., makers of Black & Mild cigars for $2.9 billion in cash. Altria chief executive Michael Szymanczyk told reporters that "It fits squarely with our announced strategy to grow our U.S. tobacco business beyond cigarettes and complements our recent initiatives in the smokeless category." It also shows Altria’s regard for the profit potential of cigars and for the solid position of John Middleton and especially its Black & Mild brand. In Altria’s filing with the U.S. Securities & Exchange Commission, the power of that brand was demonstrated. Middleton’s operating revenues are expected to reach $360 million on sales of 1.2 billion cigars. Its net income is expected to be about $182 million for a profit margin of 50.6 percent! Black & Mild has, according to Altria, 23 percent of the U.S. machine-made cigar market, estimated at 5.3 billion units annually. Remember that the premium – handmade – segment is only about 300 million units a year, or just 5.7 percent of the size of the machine-made market. Altria also noted that the Black & Mild brand is the second-largest-selling brand in the category (Swisher Sweets is the leader), with most of its strength in the South where it has a 55 percent market share. >> In a victory for smokers which demonstrated how tax-averse even a liberal state like Oregon can be, state voters soundly defeated Measure 50, which would have placed a heavy tax on tobacco products in the state constitution. The initiative lost by roughly a 60 percent to 40 percent margin in the November 6 election, a stinging rebuke to the state’s Democratic political leadership which placed it on the ballot. Like similar measures which failed in California and Missouri last year, voters rejected a plan which would have placed the burden of funding an expansion of children’s health care – as is being proposed in Washington now for the SCHIP plan – on less than 20 percent of the state’s population. The proposed 84.5-cents-per-pack addition to the tax on cigarettes (to $2.02 per pack) would have raised an estimated $150 million annually said proponents, which included the usual litany of do-good groups and anti-tobacco advocates. The measure would also have added an additional 30 percent tax on the wholesale price of all cigars as well as on all other tobacco products. Specific language in the measure, however, would have allowed the Oregon Legislature to maintain the existing 50-cent tax cap on individual cigars by subsequent legislation. >> The Spanish government’s securities regulation agency, known as the CNMV, approved the Imperial Tobacco plan to acquire Altadis, S.A. and clears the way for the actual sale to take place. Imperial said in a statement that its tender offer period for shares would begin on November 12 and continue through January 11, 2008. The statement also said that Altadis would call an extraordinary shareholder meeting concerning the sale within the next two weeks. The Altadis Board agreed to recommend the sale to Imperial last July 18. >> Short fillers: The British auction house Christie’s will hold its annual sale of vintage cigars on November 15 in London with 199 lots up for bid, including an amazing 25 that are expected to be sold for more than 1,000 British pounds or about $2,211 U.S. at current exchange rates. The two items expected to bring the most money are Cuban-made Hoyo de Monterrey specialty humidors: (1) a Hoyo de Monterrey Monterreyes Humidor, with 55 specially-made Monterreyes cigars (9 1/2 x 55 perfectos) from 1998, expected to sell for between $14,777 and $18,999 and (2) a Hoyo de Monterrey Diademas Humidor, with 96 Diademas (9 1/2 x 55 perfecto) cigars included in a one-of-a-kind 1990s project, expected to sell for an astronomical $16,888 to $25,332! Want more? Join us for daily coverage of cigars, accessories, people and issues at www.CigarCyclopedia.com <http://www.CigarCyclopedia.com> . Heard in the Humidor is a publication of Perelman, Pioneer & Company. Copyright 2007; All rights reserved. Rich Perelman 11/12/07
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