Does Reynolds Wish for Swisher?

December 18, 2007 - Does Reynolds Wish for Swisher? Citi Investment Research analyst Bonnie Herzog speculates RJR could buy cigar maker to counter PM USA/John Middleton (see related news brief directly below dated December 17, 2007). We believe there is a 75% chance that Reynolds acquires Swisher within the next 6-12 months." An acquisition of Swisher International Inc., a private tobacco company and a market leader in machine-made cigars, would offer several benefits to Reynolds American Inc. including a quick market share grab of the growing cigar industry, substantial cost savings and synergies with its Conwood and Lane subsidiaries, an opportunity to truly become a "total" tobacco company and to become a bigger player in the growing U.S. cigar category than PM USA, said Herzog. An acquisition of Swisher would give Reynolds the opportunity to become the second-largest domestic cigarette manufacturer, the second-largest smokeless manufacturer and the largest machine-made cigar manufacturer, she added. With U.S. cigarette volumes consistently declining, and Reynolds inability to take its famous cigarette brands outside the United States given the sale of these trademarks, "we believe an acquisition of Swisher provides Reynolds with a growth opportunity within the domestic tobacco sector, much like Conwood, considering cigar volumes have been growing, even despite limited promotion of the segment."

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