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Analyst praises Swedish Match s cigar JV

Today's news that Swedish Match AB (STO: SWMA) will set up a cigar joint venture with Denmark-based Scandinavian Tobacco Group A/S (STG) will further streamline the former's operations and will create synergies, an unnamed analyst told newswire Nyhetsbyran Direkt.

Earlier today, the parties announced a letter of intent (LOI) to form a 49/51 joint venture, which would include Swedish Match's cigar business, with the exception of the US mass-market cigars, and STG's operations within cigars, pipe tobacco and fine-cut tobacco.

Via the move, Swedish Match has made another step towards becoming a pure-play (moist) snuff company, according to the analyst, who estimates that the synergies from the joint venture are not to be neglected.

It is also considered positive that the company will retain its flourishing US cigar business, while transferring the less profitable European operations to the joint venture.

According to the analyst, the new entity will have prospects of becoming price-leading in the cigar segment.

"The question is what Swedish Match will do then and I think it will consequently sell its stake," said the analyst, who is certain that STG had wanted to have full ownership from the beginning but Swedish Match had preferred to make the move in two steps.

Source: Trading Markets