News; Jul 7, 2004 CET

Settlement with UST adds new cigar range

Swedish Match North America and U.S. Tobacco have reached a settlement whereby UST will make a one-off payment of 200 MUSD (approximately 1,540 MSEK) to Swedish Match. Under the terms of the settlement, Swedish Match will also take over all of UST’s cigar operations, with annual sales of about 11 MUSD (approximately 85 MSEK). The settlement marks the end of a legal dispute that began in July 2002.

Under the terms of the settlement, Swedish Match will take over the brands for the cigars produced by UST’s subsidiary U.S. Cigar Sales Inc. Other assets, such as plants, tobacco plantations, inventories of finished products and tobacco stocks, will also pass into Swedish Match’s ownership. The transfer will strengthen Swedish Match’s position, particularly in the US market for premium cigars.

U.S. Cigar’s plant is located in Danl몠Honduras, close to one of General Cigar’s plants. The company also grows its own tobacco in the nearby Talanga Valley. Among the best-known cigar families produced by the company in Honduras are Don Tomౠand Astral. Connoisseurs rate Astral Talanga Valley Selection among the finest cigars produced in Honduras. It has yet to be decided how the new operation will be integrated with Swedish Match. The agreement is expected to become effective in June this year.

Swedish Match brought its action against UST under the US antitrust legislation before a court in Kentucky in July 2002. The lawsuit followed a court judgment awarding another competitor a large sum in damages from UST. The process has been under way since then, but in the meantime discussions concerning a settlement were initiated.

“This was because it was in the interests of both parties to put the affair behind them. It is expensive to conduct legal proceedings, as well as diverting much time and energy from normal operations,” explains Fredrik Peyron, corporate attorney at Swedish Match.

“In addition, legal disputes always involve an element of uncertainty, given that you can never be 100-percent certain what the outcome will be. Now we know the result, and we have also reached an agreement with which we are pleased,” he adds.

THE SETTLEMENT ALSO REMOVES a major obstacle that has prevented Swedish Match and U.S. Tobacco from cooperating on other, industry-wide issues. Both companies share the same view regarding smokeless products and harm reduction, and there is much instructional and informational work to be done in this area.