CONFIDENTIAL
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROJECT SWEET
Presentation Materials for the
Board of Directors
November 5, 1998
Xxxxxxxxxxx Xxxxxxx & Co.
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Current Situation
o WP&Co. has been retained by Sweet to assist the Company in evaluating
alternatives to increase shareholder value
o Sweet's stock is currently trading at $6.88 per share reflecting an equity
value of $233MM and an enterprise value of $325MM
- implies multiples of 4.4x LTM EBITDA and 6.4x LTM net income
- stock price has declined 60% since the initial public offering in
December 1996
- stock is trading at 65% below 52 week closing high of $19.44 on
November 5, 1997
o Sweet's valuation has been significantly impacted by several factors:
- current industry conditions and a potential permanent shift in industry
dynamics
- increased competitive activity
- lack of liquidity in the stock
- overhang surrounding current tobacco litigation environment
o The public companies comparable to Sweet have been similarly impacted
- Consolidated Cigar and General Cigar are trading at 64% and 69% below
their 52 week closing highs, respectively
o WP&Co. has considered several alternative transactions to increase
shareholder value taking into account these factors as well as the
constraints imposed by the controlling shareholdeder
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Background
o In connection with its assignment, WP&Co. has conducted the following due
diligence:
- reviewed certain public and non-public information with respect to Sweet,
including financial projections prepared by management
- discussed with members of senior management the business and financial
condition and prospects of Sweet
- visited the primary cigar manufacturing facility of the Company
- considered business trends in the business segments in which the Company
operates
- considered, among other things, such other information, financial studies,
analyses and financial, economic and market criteria as WP&Co. deemed
relevant
o WP&Co. also performed the following valuation analyses:
- historical trading ranges and ownership analysis
- discounted cash flow analysis
- comparable public company analysis
- cigar industry acquisition analysis
- premiums paid in minority transactions
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Consideration of Alternative Transactions
o As part of its assignment, WP&Co. considered several alternative transactions
to increase shareholder value
o The majority shareholder has indicated that it has no interest in selling its
ownership stake in Sweet at this time
- therefore, there is no prospect of a sale of a controlling interest to a
third party
o WP&Co. analyzed a leveraged recapitalization of the Company in order to pay
shareholders a special one-time dividend
- given difficult conditions in debt markets and tobacco overhang, leverage
likely limited to 4x 1998 Debt/EBITDA allowing for one-time dividend of
approximately $5 per share
- initial value of stub equity is likely to be low and trading pattern will
be highly volatile given reduced liquidity and current equity market
conditions
- cash dividend may not be tax efficient for major shareholder
o Given the majority shareholder's desire to maintain greater than 80% of the
vote and economics of Sweet for tax purposes, an additional equity offering
to increase the public float is not feasible
o Based on the value placed on Sweet by the public market and given the
controlling shareholder imposed constraints to undertaking alternative
transactions, WP&Co. believes a going private transaction is the most
attractive alternative for Sweet
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Factors Impacting Valuation
o There is limited liquidity in Sweet's stock with only 5.778MM shares publicly
traded
- average daily trading volume has been approximately 60,000 shares since
IPO (approximately 33,000 and 34,000 shares in the last six-month and
three-month period, respectively)
o The Company has limited coverage on Wall Street
- Most of the analyst community is negative on the sector given signs
suggesting the resumption of long-term volume decline
- analysts have reduced long-term growth estimates from 20+% in early 1997
to approximately 9% today
o Sweet faces potential risks from tobacco-related litigation, federal and
state taxation, and industry regulation
- potential for increased tobacco litigation
- potential for significant increases in excise taxes
- risk of legislation leading to increased regulation of tobacco products
o The Company has continued to reduce earnings estimates and is not meeting its
latest budget for 1998
- operating profit is expected to decline 16% to $61.5MM from 1997
- net income for 1998 is expected to be 35% below the December 1997 budget
and 24% below the July 1998 revised budget
- management is projecting 1998 EPS of $0.96 vs. latest Street estimates of
$1.05
- performance is behind plan in mass market large and premium cigars, as
well as smokeless tobacco products
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Overview of Trading Ranges and Ownership
o Sweet is controlled by the Xxxxxxx familiy, which holds 83% of the total
shares outstanding and controls 98% of the vote through multiple vote Class B
shares
- the remaining publicly-held shares trade fairly inactively
o Sweet has been trading at an average price of $5.46 per share over the last
month
- currently at $6.88 per share
- initial public offering price was $17 per share in December 1996 and stock
traded up to a 52 week closing high of $19.44 on November 5, 1997
- the average closing price since the IPO has been $13.46
o Sweet has traded in line with the other public cigar companies over the last
12 months ended November 4, though it has significantly underperformed the
S&P 500
- S&P 500 is up 19%, while Sweet is down 65%
o Since the IPO, 81% of the volume in the stock has traded at prices ranging
from $13-$21 per share
- in the last twelve months, 52% of the volume in the stock has traded at
prices ranging from $13-$21 per share
o Based on the most current filings, the top 7 holders of the public shares
hold over 50% of the shares held by the minority
- these shares were purchased at average prices ranging from $10-$17 per
share
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Sweet Stock Price & Volume History since IPO
[GRAPHIC OMITTED]
Weekly from December 20, 1996 to November 4, 1998
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
LTM Index Stock Price Comparison
[GRAPHIC OMITTED]
Weekly from November 7, 1997 to November 4, 1998
--------------
Note: Tobacco Index is a combination of stock prices of three major tobacco
companies: Xxxxxx Xxxxxx, RJR Nabisco and British American Tobacco.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Historical Trading Ranges
-----------------------------------------------------------------------------------------------------------------------
IPO Share Price(1)
-------------------- ------------------------------------------------
11/4/98 1 Month 3 Month 6 Month 1 Year
Price Date Price Average Average Average Average
-----------------------------------------------------------------------------------------------------------------------
Xxxxxxx(5) $6.88 12/18/96 $17.00 $5.46 $5.70 $7.15 $10.82
Current vs. Historical (% change} (59.6%) 25.8% 20.6% (3.8%) (36.4%)
Consolidated Cigar(6) 12.50 8/16/96 23.00 10.10 9.33 10.70 16.67
Current vs. Historical (% change) (45.7%} 23.8% 33.9% 16.9% (25.0%)
General Cigar(7) 9.00 2/28/97 18.00 8.45 7.20 8.59 13.61
Current vs. Historical (% change) (50.0%) 6.6% 25.0% 4.8% (33.9%)
UST(8) 33.81 11/5/84 4.56 31.70 29.37 28.19 30.51
Current vs. Historical (% change) 641.1% 6.7% 15.1% 19.9% 10.8%
------------------------------------------------------------------------------------------------------------
Share Price Short Interest(2)
-------------------------------- -------------------------------
Average 52 Week 52 Week % of Avg. % of
since IPO High Low Daily Vol.(3) Shares(4)
------------------------------------------------------------------------------------------------------------
Xxxxxxx(5) $13.46 $19.44 $4.38 0.2X 0.1%
Current vs. Historical (% change} (48.9%) (64.6%) 57.1%
Consolidated Cigar(6) 23.27 35.00 7.19 9.5 5.4
Current vs. Historical (% change) (46.3%) (64.3%) 73.9%
General Cigar(7) 18.53 29.06 5.50 8.0 5.4
Current vs. Historical (% change) (51.4%) (69.0%) 63.6%
UST(8) 20.01 36.94 24.88 4.9 1.0
Current vs. Historical (% change) 69.0% (8.5%) 35.9%
-------------------
Source: IPO Prospectus, FactSet and Bloomberg.
(1) Daily Closing share prices are used.
(2) Short interest outstanding as of mid-October 1998.
(3) Average daily trading volume from mid-September 1998 to mid-October 1998.
(4) Total number of shares (Chass A shares for Xxxxxxx, Consolidated and
General; Common shares for UST) in September 1998.
(5) Hay Island Holding Corp. (controlled by the Xxxxxxx family) controls 83%
of the economics and 98% of the votes of Xxxxxxx. Approximately 17% of
total shares are publicly traded.
(6) Xxxxxx X. Xxxxxxxx controls 63% of the economics and 95% of the votes of
Consolidated Cigar. Approximately 37% of total shares are publicly traded.
Consolidated Cigar completed a secondary offering in March 1997 at $23.75
per share.
(7) Cullman & Ernst Group controls 36% of the economics and 60% of the votes of
General Cigar. 100% of total shares are publicly traded. Class A shares
(45%) are traded in NYSE; Class B shares (55%) are traded in OTC.
(8) Split adjusted share prices are used.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Sweet LTM Distribution of Volume at Various Prices
[GRAPHIC OMITTED]
----------------
Source: FactSet (daily closing price and daily volume)
Note: Total does not add up to 100% due to rounding.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Sweet Distribution of Volume at Various Prices since IPO
[GRAPHIC OMITTED]
----------------
Source: FactSet (daily closing price and daily volume)
Note: Total does not add up to 100% due to rounding.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Overview of Preliminary Valuation Considerations
o WP&Co. has performed various valuation analyses
---------------------------------
Discounted Cash Flow Analysis
---------------------------------
o Management projections for 1998-2005 were discounted based on estimated
weighted average cost of capital and perpetuity growth rates
- WP&Co. analyzed management's base case and a downside case assuming
negative implications from potentially adverse legislation
-------------------------------
Comparable Company Analysis
-------------------------------
o Comparable companies to Sweet are trading (based on LTM #s) at an average
of 1.5x sales, 6.1x EBIT and 7.3x net income
- limited universe of comparable companies
- research analysts have a neutral/hold position on the industry
-----------------------------------
Comparable Acquisition Analysis
-----------------------------------
o Cigar industry acquisitions have been completed at an average of 1.4x
sales, 7.6x EBITDA and 8.7x EBIT
- limited data available to compute multiples and include mainly Sweet
transactions
- acquisition prices reflect a control premium
--------------------------
Premiums Paid Analysis
--------------------------
o Since October 1987, premiums paid in minority squeeze out transactions have
averaged 29% (based on the stock price one day prior to announcement)
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Selected Comparable Companies - Trading Multiples ($MM)(1)
Market Value Adjusted Market Value
as a Multiple of as a Multiple of
Adjusted ---------------- -------------------------
Stock Period Market Market Net Book Net
Company (Ticker) Price Ended Value Value Income Value Sales EBITDA EBIT
---------------- ----- ----- ----- ----- ------ ----- ----- ------ ----
LTM Multiples
-------------------------------------------------------------------------------------------------------------------------
Xxxxxxx (SWR)(2) $ 6.88 9/30/98 $ 233 $ 325 6.4x 2.1x 1.2x 4.4x 4.9x
-------------------------------------------------------------------------------------------------------------------------
Consolidated Cigar (CIG) 12.50 7/4/98 376 576 7.4 6.0 1.9 5.9 6.5
General Cigar (MPP) 9.00 8/29/98 244 318 7.3 1.2 1.1 5.0 5.7
UST (UST) 33.81 9/30/98 6,380 6,408 14.0 11.2 4.6 8.4 8.7
-------------------------------------------------------------------------------------------------------------------------
Mean(3) 7.3x 3.6x 1.5x 5.4x 6.1x
-------------------------------------------------------------------------------------------------------------------------
NFY Multiples
-------------------------------------------------------------------------------------------------------------------------
Xxxxxxx (SWR)(2) $ 6.88 12/31/99 $ 233 $ 325 5.8x 1.4x 1.1x 4.2x 4.6x
-------------------------------------------------------------------------------------------------------------------------
Consoidated Cigar (CIG) 12.50 12/31/99 376 576 7.3 2.7 1.9 6.0 6.6
General Cigar (MPP) 9.00 11/30/99 244 318 8.3 1.0 1.1 5.6 6.6
UST (UST) 33.81 12/31/99 6,380 6,408 13.0 7.6 4.2 7.8 8.1
-------------------------------------------------------------------------------------------------------------------------
Mean (3) 7.8x 1.8x 1.5x 5.8x 6.6x
-------------------------------------------------------------------------------------------------------------------------
Estimated Price Relative
Long-Term P/E to to 52 Week
EPS Growth ----------------
Growth Ratio High Low
------ ----- ---- ---
LTM Multiples
---------------------------------------------------------------------
Xxxxxxx (SWR)(2) 9.3% 0.7x 35.4% 157.1%
---------------------------------------------------------------------
Consolidated Cigar (CIG) 13.3% 0.6 35.7% 173.9%
General Cigar (MPP) 12.8% 0.6 31.0% 163.6%
UST (UST) 9.8% 1.4 91.5% 135.9%
---------------------------------------------------------------------
Mean(3) 13.0% 0.6x 33.3% 168.8%
---------------------------------------------------------------------
NFY Multiples
---------------------------------------------------------------------
Xxxxxxx (SWR)(3) 9.3% 0.6x 35.4% 157.1%
---------------------------------------------------------------------
Consoidated Cigar (CIG) 13.3% 0.6 35.7% 173.9%
General Cigar (MPP) 12.8% 0.6 31.0% 163.6%
UST (UST) 9.8% 1.3 91.5% 135.9%
---------------------------------------------------------------------
Mean(3) 13.0% 0.6x 33.3% 168.8%
---------------------------------------------------------------------
--------------
(1) Stock prices are current as of 11/4/98.
(2) Multiples of Xxxxxxx IPO: Offer Price on 12/18/96: $17/share, MV: $580MM,
Adj. MV: $697MM, MV/NI: 23.4x, MV/BV: 12.5x, AMV/Sales: 3.1x, AMV/EBITDA:
12.5x, AMV/EBIT: 13.8x, IBES LT EPS Growth: 24.8%. Multiples are based on
12/18/96 market value and 12/30/96 fiscal year financials. IBES Estimate is
based on Feb. 1997 figure.
(3) Only multiples from Consolidated Cigar and General Cigar are included in
mean calculations.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Selected Cigar Acquisitions ($MM)(1)
Adjusted Purchase Price Purchase Price
as a Multiple of: as a Multiple of:
Adjusted ----------------------- ------------------
Date Percent Purchase Purchase Net Net Book
Announced Target/Acquiror Acquired(2) Price Price Sales EBITDA EBIT Income Value
--------- --------------- ----------- ----- ----- ----- ------ ---- ------ -----
10/02/97 DB International Marketing/
General Cigar 100% $7 $7 0.9x NA 6.5x NA NA
09/11/97 Havatampa Inc-Cigar Division/
Tabacalera 100% 275 275 2.0 NA NA NA NA
09/11/97 Havatampa and Tabacalera San
Xxxxxxxxx/Tabacalera 100% 367 367 NA NA NA 8.7x NA
08/26/97 La Flor/Consolidated Cigar 75% 19 19 NA NA NA NA 8.0x
07/10/97 Xxx Xxxx Importer Inc/Tabacalera 100% 53 53 2.1 7.3x 7.3 NA NA
12/19/96 Henri Wintermans/Skandinavisk
Tobakskompagni 100% 92 92 NA NA NA NA 1.4
08/27/96 Villazon/General Cigar 100% 81 91 1.9 NA 6.4 NA 7.5
07/07/95 Xxxxxxx (American Maize)/
Investor Group 100% 170 170 0.9 4.1 4.6 8.2 4.3
12/14/92 Triple C Acquisition Corp/
Mafco Holdings 100% 275 180 2.2 9.4 12.8 16.9 12.6
11/02/88 Consolidated Cigar/Vestar Capital 100% 128 128 NA NA NA NA NA
12/04/87 Universal Cigar/Xxxxxxx 100% 13 13 1.1 NA 13.9 NA NA
01/02/86 Helme Tobacco/Xxxxxxx 100% 63 63 1.3 8.1 8.7 NA 1.8
10/01/85 Xxxxxx-Xxxxxxx y Ca./Xxxxxxx 100% 6 6 0.8 9.4 9.8 NA NA
07/11/84 Consolidated Cigar/MacAndrews
& Forbes 100% XX XX XX XX XX XX XX
00/00/00 Consolidated Cigar (Gulf &
Western)/Investor Group 100% 120 120 0.7 NA NA NA NA
---------------------------------------------------------------
Mean 1.4x 7.6x 8.7x 11.3x 5.9x
Median 1.2x 8.1x 8.0x 8.7x 5.9x
---------------------------------------------------------------
-------------------------------
(1) Estimated multiples based on SDC and publicly available information as well
as WP&Co. and research estimates.
(2) Prices and multiples adjusted to reflect acquisition of 100% of business in
cases where less than 100% is acquired.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Summary of Selected Minority Squeeze-Out Transactions Completed from October
1987
% Stock Premium Before Original Announcement Date
-----------------------------------------------------------------
1 Day 1 Week 4 Week 3 Month 6 Month 1 Year
----- ------ ------ ------- ------- ------
Mean 28.6% 31.6% 32.1% 33.9% 37.5% 49.5%
Median 26.2% 26.3% 28.6% 30.9% 32.1% 37.3%
High 125.0% 91.7% 138.6% 130.3% 183.8% 251.7%
Low (20.5%) (19.8%) (19.8%) (23.0%) (51.8%) (56.9%)
--------------
Source: Securities Data Company, Inc. (Search on criteria: "Acquisitions of
Remaining Interest", "Percent of Shares Acquired between 0% to 49.99%",
"Percent of Shares Owned after Transaction is 100%", "Cash Only
Transaction", "Deal Value between $10MM and above", "Public Target",
"Completed Transactions from 10/1/87 to 10/31/98, including Pending
Transactions from 1/1/97 to 10/31/98") and FactSet for securities
premiums.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Price Range Comparison -- Based on Management Base Case Projections
-----------------------------------------------------------------------------------------------------------------------------
Price
Current Price ---------------------------------------------------------------------
$6.88 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00
-----------------------------------------------------------------------------------------------------------------------------
Premium 0.0% 16.4% 23.6% 30.9% 38.2% 45.5% 52.7% 60.0%
Implied Values (MM):
Equity Market Value $233 $271 $288 $305 $322 $339 $356 $373
Value of Publicly Traded Shares 40 46 49 52 55 58 61 64
Adjusted Market Value 325 364 380 397 414 431 448 465
Multiples:
Sales
LTM(1) $269.0 1.2 1.3 1.4 1.5 1.5 1.6 1.7 1.7
1998E 272.9 1.2 1.3 1.4 1.5 1.5 1.6 1.6 1.7
1999P 285.2 1.1 1.3 1.3 1.4 1.5 1.5 1.6 1.6
EBITDA
LTM(1) 73.2 4.4 5.0 5.2 5.4 5.7 5.9 6.1 6.4
1998E 67.3 4.8 5.4 5.7 5.9 6.2 6.4 6.7 6.9
1999P 73.4 4.4 5.0 5.2 5.4 5.6 5.9 6.1 6.3
EBIT
LTM(1) 66.9 4.9 5.4 5.7 5.9 6.2 6.4 6.7 7.0
1998E 60.7 5.4 6.0 6.3 6.5 6.8 7.1 7.4 7.7
1999P 66.4 4.9 5.5 5.7 6.0 6.2 6.5 6.8 7.0
Net Income
LTM(1) 36.1 6.4 7.5 8.0 8.4 8.9 9.4 9.8 10.3
1998E 32.6 7.1 8.3 8.8 9.4 9.9 10.4 10.9 11.4
1999P 37.2 6.3 7.3 7.7 8.2 8.6 9.1 9.6 10.0
-----------------------------------------------
Share Price (11/04/98) $6.88
Number of Shares (MM)(2) 33.878
Number of Publicly Traded Shares (MM)(3) 5.778
Net Debt (11/04/98) $92.5
-----------------------------------------------
--------------
(1) as of 9/30/98.
(2) Includes 5.8MM Class A and 28.1MM Class B shares.
(3) Includes approximately 25,000 Class A shares owned by officers and
directors.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
PROJECT SWEET Executive Summary
--------------------------------------------------------------------------------
Price Range Comparison -- Based on Street Estimates
------------------------------------------------------------------------------------------------------------------------------------
Price
Current ----------------------------------------------------------------------
$6.88 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00
------------------------------------------------------------------------------------------------------------------------------------
Premium 0.0% 16.4% 23.6% 30.9% 38.2% 45.5% 52.7% 60.0%
Implied Values (MM):
Equity Market Value $233 $271 $288 $305 $322 $339 $356 $373
Value of Publicly Traded Shares 40 46 49 52 55 58 61 64
Adjusted Market Value 325 364 380 397 414 431 448 465
Multiples:
Sales
LTM(1) $269.9 1.2 1.3 1.4 1.5 1.5 1.6 1.7 1.7
1998E 271.0 1.2 1.3 1.4 1.5 1.5 1.6 1.7 1.7
1999P 285.5 1.1 1.3 1.3 1.4 1.5 1.5 1.6 1.6
EBITDA
LTM(1) 73.2 4.4 5.0 5.2 5.4 5.7 5.9 6.1 6.4
1998E 72.9 4.5 5.0 5.2 5.5 5.7 5.9 6.1 6.4
1999P 77.9 4.2 4.7 4.9 5.1 5.3 5.5 5.8 6.0
EBIT
LTM(1) 66.9 4.9 5.4 5.7 5.9 6.2 6.4 6.7 7.0
1998E 65.9 4.9 5.5 5.8 6.0 6.3 6.5 6.8 7.1
1999P 70.9 4.6 5.1 5.4 5.6 5.8 6.1 6.3 6.6
Net Income
LTM(1) 36.1 6.4 7.5 8.0 8.4 8.9 9.4 9.8 10.3
1998E 35.1 6.6 7.7 8.2 8.7 9.2 9.7 10.1 10.6
1999P 40.0 5.8 6.8 7.2 7.6 8.0 8.5 8.9 9.3
-----------------------------------------------
Share Price (11/04/98) $6.88
Number of Shares (MM)(2) 33.878
Number of Publicly Traded Shares
(MM)(3) 5.778
Net Debt (11/04/98) $92.5
-----------------------------------------------
------------------
(1) As of 9/30/98.
(2) Includes 5.8MM Class A and 28.1MM Class B shares.
(3) Includes approximately 25,000 Class A shares owned by officers and
directors.
Xxxxxxxxxxx Xxxxxxx & Co.
--------------------------------------------------------------------------------
