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THE SKEPTIC: Will Swed Match, Gallaher Snuff Out Rivals? 

Jump to full article: The Wall Street Journal Interactive Edition, 2002-09-13
Author: Brian Truscott, Dow Jones Newswires


Now, a member of the E.U. committee on tobacco issues recently said the union's ban on snuff, in effect since 1992, is doomed, and that it's only a question of when and how it will be lifted. Analysts reckon this prognosis is accurate, and say the ban could go as early as next year.

At the moment, certain smokeless tobacco products can only be sold in Sweden, which negotiated a waiver from the ban when it joined the E.U. in 1995. That suits Swedish Match just fine, because it controls 99.5% of a market that accounts for about a fifth, or SEK2 billion-plus, of the company's annual sales.

Moreover, Swedish Match says the snuff market, which is also increasingly active in the U.S., continues to grow at almost double-digit pace annually.

If the E.U. lifts the ban, then it will only be cultural inhibitions that stop Swedish Match from dominating a nascent European snuff market with products such as Snus, a moist snuff tobacco product that comes in a small packet and is tucked between the lip and the gum.

Enter Gallaher, a tobacco company that only a few years ago was deemed to be U.K.-centric and bereft of any international opportunities. . .

Of course the real bonus for Gallaher will come when the E.U. ban goes. That's when Gallaher can push Gustavus' goods through its international distribution chain, and properly ramp up sales and earnings.

If that happens, Gallaher management can sit back, have a smoke or a dip, safe in the knowledge they've snuffed out the threat of losing another important avenue for earnings growth.

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