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Denmark's Scandinavian Tobacco to buy Royal Agio Cigars for €210M

Denmark's Scandinavian Tobacco Group A/S agreed to acquire 100% of Agio Beheer B.V. from Highlands Beheer BV for €210 million, according to separate announcements Sept. 16.

Agio Beheer is the holding company of Royal Agio Cigars, a family-owned business that was established in 1904. It sells tobacco products across 90 countries, including the Netherlands, Belgium, France, Germany, Italy and Spain. The company has approximately 3,200 full-time employees working in factories in the Netherlands, Belgium, Sri Lanka and the Dominican Republic and across the company's sales networks in Belgium, the Netherlands, Luxembourg, France, Germany, Italy and the U.S.

Netherlands-based Royal Agio sells cigars under the brands Mehari's, Panter and Balmoral. It generated €133 million in annual net sales and an EBITDA of €18 million.

Scandinavian Tobacco said the move would give it access to Royal Agio's product portfolio and important market positions in key European machine-made cigar markets, particularly in France, Belgium, the Netherlands, Spain and Italy. If completed, the integration of Royal Agio would raise Scandinavian Tobacco's group net sales to approximately 7.7 billion Danish kroner and boost its workforce to 10,000 employees.

The company said it will fund the deal with cash on hand and debt. The transaction is expected to close in the first half of 2020, subject to the employee consultation process in the Netherlands and approval from competition authorities in certain European jurisdictions.

"The combination of the two companies will be in a better position to deal with the financial consequences of ever-increasing legislation and regulations," Boris Wintermans, CEO of Royal Agio Cigars, said in a statement.

Scandinavian Tobacco continues to expect a more than 5% organic growth in EBITDA in 2019 and for free cash flow before acquisitions to be more than 750 million kroner. Meanwhile, special items, excluding costs related to the acquisition of Royal Agio, are expected to be 85 million kroner.

In addition, the company expects the deal to be EPS accretive no later than the second year after completion. It said the group leverage ration will temporarily exceed 2.5x if the transaction pushes through.

Scandinavian Tobacco's stock closed down 1% at 79.10 kroner on Sept. 16.

As of Sept. 16, US$1 was equivalent to 6.79 Danish Kroner.