Ending ban on Cuban cigars would boost prices, maker says

Ending ban on Cuban cigars would boost prices, maker says
Published on Thursday, February 21, 2008
By Thomas Mulier

GENEVA, Switzerland (Bloomberg): Premium Cuban cigars would jump in
price if the US were to end an embargo on trade with the island nation
and permit their sale in its cigar market, the world's largest,
according to Swedish Match AB.

Demand for Cuban cigars might double overnight if the ban were lifted, a
step Swedish Match managers view as "inevitable," Chief Financial
Officer Lars Dahlgren said on Wednesday. The Stockholm-based owner of
the Macanudo brand has drawn up plans to prepare, he said in a telephone
interview.

Speculation about an end to the ban arose on Tuesday as Fidel Castro
resigned as Cuba's president after 49 years, though the US State
Department said no policy changes are imminent. American smokers buy
two-thirds of the world's premium cigars, according to Swedish Match,
the industry's second-largest member, which has contested ownership of
the Cohiba brand with Cuba's government.

"There's no way you can serve Europe and the US if Cuban cigars became
big in the US," said Dahlgren, who declined to say when the ban might be
lifted. "If consumers would demand the same quality of cigars, prices
would skyrocket."

The entire industry eventually would benefit from an end to the embargo,
which would create more interest in smoking cigars, according to Dahlgren.

The ban, which was imposed in 1962 by John F. Kennedy and tightened by
later US presidents, has sparked a dispute between Swedish Match and
Cuba's government over the rights to the Cohiba brand. It also was the
cause of a legal battle between Bacardi Ltd. and Pernod Ricard SA for
the Havana Club rum trademark.

Cigars sold now under the Cohiba name in the US are made in the
Dominican Republic. Cuban-made Cohibas are sold outside the US by
Corporacion Habanos, a partnership between the Caribbean nation's
government and Madrid-based Altadis SA.

Handmade Cohiba Corona Especial cigars from the Dominican Republic cost
about $7 each on the website of Burlington, North Carolina-based
JRCigars.com, which bills itself as the world's biggest cigar store. A
Cuban Cohiba costs 23.40 Swiss francs ($21) at the Davidoff cigar shop
in Geneva.

Altadis has been taken over by Imperial Tobacco Group Plc, the Bristol,
England-based maker of John Player Special cigarettes. Imperial might
get a boost of as much as 2 percent to earnings before interest, tax,
depreciation and amortization if the US were to end the embargo, said
Jonathan Fell, an analyst at Deutsche Bank AG in London.

"We are prepared for this to happen sometime," Dahlgren said of a
lifting of the ban. "The US is our most important premium cigar market.
If the US consumer wants Cuban cigars, we will seek to share that
segment of the market."

Swedish Match may lose market share initially if the ban were ended and
Cuba kept its monopoly on production, he said. In addition to its own
brands such as Garcia y Vega, the company owns Cuban heritage trademarks
including Partagas and Hoyo de Monterrey that were bought from exiles.

"The first few weeks we wouldn't sell a single cigar because everyone
would be buying the forbidden fruit," the CFO said.

Swedish Match, the world's second-biggest maker of smokeless tobacco
products, reported a 31 percent gain in fourth-quarter profit today
after tax increases in Sweden prompted it to boost snuff prices.

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