For the week of December 24-28, 2007

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Los Angeles – The consolidation in the tobacco industry continues and cigar companies – seen as a steady, profitable, growth area – are increasingly coming within the sights of the major cigarette makers as possible acquisitions.

Bonnie Herzog, a well-known tobacco analyst for Citi Investment Research, issued a research report in which she projects that Reynolds American – maker of world-renowned cigarette brands such as Camel, Doral, More, Salem, Vantage, and Winston – would buy machine-made cigar giant Swisher International.

According to Reuters, Herzog wrote in her report that "We assign a 75 percent probability that the deal could happen within the next 6-12 months." The new service reported that "Citi analysts conducted a survey of their industry trade contacts to gauge their thoughts and found that 88 percent of respondents believed that Reynolds would be the next major tobacco company to enter the cigar sector, and 73 percent viewed a deal between Reynolds and Swisher as the next likely deal in the U.S. tobacco market."

The prize would be considerable as the machine-made market comprises 97 percent of the 9.8 billion-unit U.S. cigar market, including large cigars such as Swisher Sweets, Phillies and White Owl and little cigars such as Captain Black and Winchester.

>> The investigative office of the U.S. Congress, the General Accountability Office (GAO), issued a report on December 19 which was critical of the U.S. Treasury sub-department which oversees enforcement of the trade embargo with Cuba. The GAO report said, according to Reuters, that "the U.S. Treasury's office that deals with financial sanctions for terrorist or criminal groups, the Office of Foreign Asset Control (OFAC), concentrated 61 percent of its cases on Cuba, while sanctions to the island correspond to only one of the existing 20 programs.

"After 2001, OFAC opened more investigations and imposed more penalties for embargo violations, such as buying Cuban cigars, than for violations of other sanctions such as those on Iran." One example cited in the report was of inspections at Miami International Airport, where 20 percent of all arrivals from Cuba had their baggage searched while only three percent of arrivals from other locations received similar scrutiny. "This intensive inspection" and "resulting seizures of small amounts of Cuban-made products" occupied a majority of the Customs facilities in Miami, "straining the agency's resources for . . . keeping terrorists, criminals and inadmissible aliens out of the country while facilitating the flow of legitimate trade and travel."

The report was requested by Rep. Charles Rangel (D-N.Y.), a critic of the Bush Administration’s extra-hard-line against Cuba. The GAO report suggested that going forward, the Customs and Treasury departments "reassess" their priorities to "effectively" balance the embargo with "protecting homeland security." In other words, look for terrorists and explosives and not Cuban rum and cigars!

>> For those who enjoy cigars on the golf course, one of the vexing problems is what to do with a lit cigar while you are actually playing. The latest concept is a delightful accessory called the "Cigar Wedge."

It’s shaped almost exactly the way it sounds, looking like another club in your bag, but designed to be pushed into the ground, with the club head facing up. Rather than a smooth edge made for striking the ball, there is a V-shaped opening wide enough to handle most cigars. The shaft is made of lightweight fiberglass and the head is treated with polymers so there’s no danger of fire or other problems with placing a lit cigar on it.

The big advantages of this device are that it fits in the bag (and as an accessory, does not count against your club count), can be placed anywhere on the fairway or green and keeps your cigar level and at an easy-to-grasp height instead of close to the ground or hanging off of your club bag. It was invented by John Nicastro and Tom Tracy and is distributed by NTI Products of West Chester, Pennsylvania. It’s reasonably priced at $24.95.

>> Short fillers: From Chris McCalla, legislative director of the International Premium Cigar and Pipe Retailers Association on the State Children’s Health Insurance Program legislation and its enormous increase in the Federal tax cap on cigars: "As you know, the President vetoed the current SCHIP legislation on December 12. The House leadership has scheduled a vote for January 23 to attempt to override that veto. It appears that the House will not be able to muster the 2/3 vote necessary to override the veto. Late last week there was talk regarding a short term extension of the current SCHIP program through March 31, 2008. However, on December 17, negotiators agreed to extend the current SCHIP program through March 31, 2009 with a small increase in funding necessary for the states to maintain their current enrollment through that date. There will be no increase in tobacco taxes to fund that modest increase. While it is always possible that Democrats will introduce another SCHIP bill in 2008 to force Republicans to vote on the issue, it now appears likely that the issue will be pushed into 2009."

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Heard in the Humidor is a publication of Perelman, Pioneer & Company. Copyright 2007; All rights reserved.

Cigar Cyclopedia

12/26/07

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