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January/February, 2010

Scandinavian Tobacco Group and Swedish Match lay groundwork for combined enterprise
In accordance with its strategic vision to become a world leader in cigars and a leading player in smoking tobacco, Scandinavian Tobacco Group (STG) has signed a letter of intent with Swedish Match (SM) to form a company combining the tobacco business of STG with the cigars businesses of SM (with the exception of SM’s US mass market cigar business). The company will also include the pipe tobacco and accessories business of SM, as well as distribution of lighters and matches in relevant markets.

The combined entity will boast a combined volume of more than 2.5 bn cigars and 1,650 tons of pipe tobacco, placing it firmly as one of the largest cigar companies in the world and as world leader in pipe tobacco. The company will have leading positions in the markets for premium cigars in the US and for cigars in Europe, and hold strong positions in a number of other markets. Its leading cigar brands will include brands such as Café Crème, Henri Wintermans, Colts, and Mercator, among others, from STG, with SM contributing brands such as Macanudo, Partagas (US), Punch (US) and La Paz. Its leading pipe tobacco brands will include Erinmore, Clan, and W.Ø. Larsen from STG and Borkum Riff and Half&Half from SM.

“The Letter of Intent marks the intention of both parties to form a value enhancing business combination within the cigar and smoking tobacco industry. Such a business combination would be complementary, create synergies and result in an overall stronger company,” says Anders Colding Friis, CEO of Scandinavian Tobacco Group.

Completion of the transaction is subject to due diligence by both parties, final transaction agreements, as well as bondholder and regulatory approvals. Signing is expected during the first half of 2010 and completion as soon as possible thereafter. Please note that there can be no assurance that the transaction will be completed.

Court: Japan Tobacco not liable for smokers’ illnesses
A Yokohama District Court recently dismissed a damages suit filed by three former smokers who argued they have developed health problems, including lung cancer, because Japan Tobacco Inc. has sold cigarettes despite acknowledging their harmfulness and the state has not imposed significant regulations on distribution.

"It cannot be said that JT recognizes it would lead the general public to develop diseases and die if it continues producing and selling (cigarettes)," presiding Judge Kunio Mizuno said. He also discharged the state from liability, rejecting the demand of Koreyoshi Takahashi, 67, from Yokohama, and two other plaintiffs that JT and the state pay ?10 mn in compensation to each of them.

South Korea
KT&G Corp introduces nation’s thinnest cigarette
Seoul - South Korean Tobacco Firm KT&G Corp. has recently launched the nation's slimmest cigarette, the EDGE, an 84 millimeter cigarette with super carbon filter. The product will come in two types, containing 1 milligram of tar and 5 milligrams of tar per cigarette, respectively.

Tekel workers protest privatization
Ankara - Around 2,000 workers of a former state alcohol and tobacco monopoly and their families gathered in the Turkish capital Ankara in early January for a new wave of protest over labor rights, Turkish media reported. The workers of the Tekel company have been protesting in Ankara for a month against the privatization of the company, which obliges workers to either quit their jobs or accept work in another state institution with lower wages and fewer benefits, the Turkish newspaper Hurriyet Daily News reported on its website.

Turkish Prime Minister Recep Tayyip Erdogan has criticized previous protests by Tekel workers as "a speculative action against the government," saying the employees would be paid in accordance with their education levels and that efforts were already underway to improve the working conditions. Some 10,000 Tekel workers earned money without working and rendered a huge cost for the government, he commented to the media in December.

    Global cigarette giant British American Tobacco PLC won an auction for Tekel with a bid of US$1.72 bn in February 2008 and completed the acquisition in June last year.

Tobacco International - January/February, 2010

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