Looking for a quicker transition out of the tobacco business toÂ boostÂ its sporting goods image and growth, Precor parent Amer Group has announced that Philip Morris may soon buy-back the tobacco-producing rights Amer owns, allowing it to get out of the contract earlier than the late 2005 expiration.
In a Dec. 17 statement, the company said it had received a proposal by Philip Morris that would terminate Amer's tobacco business in Spring 2004. Max Alfthan, Amer's vice president of communications, told SNEWSÂ® the company should know by the end of January if the proposal works out.
"The transition will be quick," Alfthan said. "It could take place and be done already during the spring. This definitely shows our commitment to totally focus on the sporting goods industry."
Although originally founded as a tobacco company more than 50 years ago in Finland, Amer has recently said its goal is to become No. 1 worldwide in sporting goods. Dumping cigs has become a vital part of that mandate â€“ one that in part was accelerated with Amer's entry into fitness a year ago with the acquisition of Precor. The company added a sports division in 1960, but announced its worldwide sports goals in 1997. Amer also owns Wilson Sporting Goods, Suunto, and Atomic.
With rumors swirling for months about a pending acquisition of another fitness equipment manufacturer that could be announced by Amer any day, an exit from the tobacco segment of its company could, Alfthan said, free capital that could then be invested in the sporting goods business to further fuel growth.
Currently, tobacco accounts for only about 10 percent of the Helsinki-based company's business, but it has helped to bolster overall company sales and profits. Besides fitness, it was the only segment that showed a gain in operating profits for the first nine months of 2003 over 2002 (3 percent, compared to fitness' 4 percent). But the company has said it expects profitability of that segment to decrease as the European Union grows stronger and broadens its reach.
Whether the company will have to weather a short downturn in revenues without tobacco is to be seen and could be influenced by the pace of additional acquisitions.
"Time will tell," Alfthan said from Finland. Although he declined specifics on pending acquisitions, he added, "We are actively participating in the consolidation of our industry."Â
A new Philip Morris licensor would take over Amer Tobacco's own trademarks, sales and marketing functions, and products in the store, as well as machinery and equipment. The proposed deal excludes Amer Tobacco's factory building, although its tobacco production would cease. Sales and marketing functions that would be transferred employ approximately 60 persons. The company has begun employer/employee negotiations and will continue talks with Philip Morris over the next month.Â
SNEWS View: This is very good news in light of the company's growing sports and fitness interests. We expect another acquisition announcement quite soon â€“ perhaps before the end of the year â€“ and that could immediately offset much of the loss of tobacco revenues. We expect Amer is planning the timing of the transfer out of tobacco and the completion of additional acquisitions quite exactly.