Imperial Brands PLC (“Imperial”) has announced it has agreed the sale of its worldwide premium cigar businesses (“Premium Cigars”) to investment consortia of individual investors in two distinct transactions for a total consideration of €1,225 million (1,329 million USD), which represents a multiple of 11.8x FY19 EBITDA on a standalone basis. The disposal reinforces Imperial’s focus on simplifying its business and realising value for shareholders.
The sale multiple recognises the luxury nature of the businesses’ products and their international growth profile. After adjusting for tax and other costs, the disposals are expected to realise net cash proceeds of around €1,094 million (1187 million USD). The proceeds will be used for debt reduction and will reduce September 2019 pro-forma net debt to EBITDA leverage by c 0.2 times.
Joint Interim Chief Executives Dominic Brisby and Joerg Biebernick said: “We are delighted to be able to announce the sale of Premium Cigars in the current challenging global environment. 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 and the proceeds will realise value for shareholders by reducing debt as part of our ongoing focus on active capital management.”
“We believe we have found the right long-term owners for Premium Cigars; they are committed to investing in the business to maximise future growth opportunities and are well positioned to further develop operations internationally.”
The sale will take place in two transactions documented under two sale agreements: one for the USA business (“Premium Cigar USA”); and another for the Rest of the World business (“Premium Cigar RoW”).
In respect of the transactions:
- Gemstone Investment Holding Ltd (China) will acquire Premium Cigar USA for a total consideration of €185 million (200 million USD). This transaction is subject to the fulfilment of certain conditions, including customary antitrust and other regulatory clearances.
- Allied Cigar Corporation, S.L will acquire Premium Cigar RoW for a total consideration of €1,040 million (£912 million). This transaction is subject to the fulfilment of certain conditions, including customary antitrust and other regulatory clearances.
- The transactions are expected to close in the third quarter of calendar year 2020. The Premium Cigar RoW transaction includes the sale of the Dominican Republic handmade premium cigar factory which is expected to close in 2021.
- Of the Premium Cigar RoW transaction consideration, €88 million (£77 million) will be deferred for 12 months from close and €69 million (£61 million) will be deferred and contingent upon transfer of the Dominican Republic factory.
The Premium Cigar business contributed £80 million of profit before tax in the year to 30 September 2019. The business comprises assets that are wholly owned as well as investments in a number of joint ventures, which results in a different accounting treatment for the two asset types:
- The wholly owned assets represented £226 million of net revenue and £30 million of adjusted operating profit of the Africa, Asia and Australasia division for the year to 30 September 2019.
- Our investments in the Premium Cigar joint ventures are accounted for using the equity method and our share of the profit after tax is £50 million for the year to 30 September 2019.
Pro-forma earnings dilution in the financial year to 30 September 2019 is around 6 pence per share*. As at 30 September 2019, the gross assets of Premium Cigars were £1,287 million and net assets were £1,111 million. An update on asset values and expected adjustments to foreign exchange reserves resulting from the transaction will be provided on publication of Imperial’s interim results for the 6 months to 31 March 2020.
