Donskoy Tabak is the biggest Russian independent cigarette company.

The largest Russian independent tobacco factory, Donskoy Tabak, is being prepared for sale. But the prospects of the company may not be as bright as the sound sales and export figures of the past three years suggest. The company’s performance may well be at its peak and uncertainties, stemming from fines for improper advertising to children as well as dubious export schemes, lie ahead. Donskoy Tabak cigarettes is a well known cigarette in Russia.

Several major players, including China National Tobacco Corporation, compete for the purchase of the company based in Rostov-on-Don. The complete list of contenders are known only to the shareholders in Donskoy Tabak, of whom there are just two: the Savvidi family (87.36%) and Open Joint Stock Company Primary Don (12.64%). Ivan Savvidi has been director general of the factory since the privatisation of the former state-owned facility in 1993. Elected to the parliament in 2003, he registered his stake (which was then 75%) to his wife, Kyriaki Savvidi.

 

All shares have been consolidated by now because Primary Don is also controlled by Ivan Savvidi. KPMG auditors have worked at the company for two years; as an open joint-stock company Donskoy Tabak has long since kept its financial records by international standards. In other words, the facility is formally ready for sale, the decisions are made by one person only, and documents are in order. However, selling requires that both sides wish to make the deal and that agreement be reached on the price. 
 

Looking back, although both potential buyers and the seller had a wish for such a deal in the past, no compromise was reached on the price. But the above described formal aspects were in a much worse state then. The situation has changed in many respects by now. There are  reasons for a buyer to offer a higher price, while the present owner may be more flexible about the value of the factory.

Why has Donskoy Tabak become more attractive to investors in recent years? The answer lies in its sales dynamics and financial performance. From 2007 to 2010, production grew by 50% for Donskoy Tabak to nearly 27 billion cigarettes. In 2011, almost as many (25 billion) were made during the first nine months.

Today, the company comes in second place in Russia in terms of export which in absolute terms will presumably exceed 4 billion pieces in 2011. The cigarette range has altered significantly over the same period. Instead of cheap filter brands, which are largely intended for the local market, and non-filter products, Donskoy Tabak today makes over 40 cigarette varieties covering all price ranges.

Though sales in the upper price ranges are not too remarkable against a background of competing brands, the brands are available in many cities and towns across the country and, most importantly, have a good presence in Moscow. Also, the factory has been able to develop one of its brands into a real best-seller. The cigarette brand in question is Kiss Superslims. It is a value brand which does not generate large margins, but demand for it amounts to 5 billion pieces or even more.

Finally, at the end of 2010 Donskoy Tabak took over the second-largest independent Russian factory, Nevo Tabak, based in St Petersburg. In other words, the company is developing, it makes increasing quantities of products that enjoy high demand and generate profits, its exports grow rapidly, its debt is easily payable, and it buys up competitors. It is in every respect a perfect target for acquisition by some multinational giant or even just an investor.