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03/22/2022

Swedish Match Suspends Plans to Spinoff Cigar Business

Its board's decision comes as the FDA reviews the company's substantial equivalent applications.
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RICHMOND, Va. — Swedish Match hit the pause button on its plan to separate its cigar business.

The company was originally slated to complete the move, which it announced in September, in the second half of this year, at the earliest. However, regulatory uncertainties drove Swedish Match to take step back from the spinoff to shareholders and a subsequent listing on a U.S. national securities exchange.

"While the board of Swedish Match still has the strategic intent to separate the cigar business, and views this as a move that would further enhance the prospects for Swedish Match's U.S. smokefree business, as well as for its U.S. cigar business, the board has today decided to suspend the preparations for the contemplated spin-off until further notice," the company announced in a March 14 statement.

According to Swedish Match, challenges related to the supply chain contributed to financial development of the U.S. cigar business falling short of its expectations in recent quarters. However, the decision to suspend the spin-off preparations was prompted by regulatory uncertainties facing the cigar business.

"Swedish Match has recently been informed by the U.S. Food and Drug Administration (FDA) that substantial equivalence (SE) designations have been denied for SE applications corresponding to about 3 percent of Swedish Match's 2021 cigar volume. It cannot be ruled out that additional SE applications for the cigar assortment will be denied in the first instance as FDA continues to work through remaining applications," the company explained.

Swedish Match plans to appeal the non-SE designations by the FDA with a request for a supervisory review and it "remains confident that the company will be given the opportunity to provide the FDA with sufficient data in order to demonstrate that the cigars in question are substantially equivalent to their predicate products insofar that the changes that have taken place do not raise questions of public health," it added.

According to the company, the decision to suspend the spin-off work is in the best interest of its shareholders.

"As the potential impacts from regulatory uncertainties have been clarified, the Swedish Match board expects to resume plans to separate the cigar business," the company's announcement added.

Swedish Match's decision to separate its U.S. cigar business followed a strategic review of its businesses as the company looks to exit the manufacturing of combustible tobacco products. The switch will allow the company to focus on smoke-free products such as nicotine pouches and snus.

Over the past 20-plus years, Swedish Match has transformed its business model away from combustible tobacco, starting with the divestiture of its cigarette business in 1999, and later with its divestitures of pipe tobacco, premium cigars and its non-U.S. machine-made cigar business, as Convenience Store News previously reported.

Swedish Match AB is based in Stockholm, with U.S. headquarters in Richmond. Production is located in seven countries, with the majority of the group sales coming from the United States and Scandinavia.