Amer tells SNEWS leaving tobacco is key for fitness

Despite being founded as a tobacco company more than five decades ago in Finland, Amer Group has decided its goal to become No. 1 worldwide in sporting goods has made its exit from tobacco vital to its continued growth and image — a decision partly kicked into high speed by its entry into fitness with the acquisition of Precor a year ago.

“Gradually, as we have become more focused on the sporting goods business, it has become more and more obvious the departure from tobacco must happen,” Max Alfthan, Amer Group vice president, told SNEWS from Finland. “As we have said, our history is in tobacco, and our future is in sports.”

Although the company added a sports division in 1960 — a decade after it was founded as a tobacco company — it wasn’t until 1997 that it announced its decision to focus on sports. But it was the acquisition of Precor nearly a year ago that turned the spotlight on the contradiction between its history and its future.

“The final decision was when we bought Precor,” Alfthan said. “It’s fitness, and tobacco is a misfit with that.”

In a press release last week, Amer Group announced it was reviewing the possibility of withdrawing from the tobacco business, Amer Tobacco Ltd., by negotiating an early termination of its exclusive license agreement with Philip Morris to produce and sell the company’s cigarettes in Finland. Alfthan said the withdrawal will indeed happen — it’s just a matter of the timing based on negotiations with both Philip Morris and the company’s 320 employees of that division. Those negotiations will begin Nov. 26.

“We are very close to being the No. 1 sporting goods company in the world, and we need to do this,” he said. “Now is the right time.”

Tobacco now accounts for about 10 percent of Amer Group Plc’s business. Although the sports division was founded in 1960, according to the company’s website (www.amersports.com), it wasn’t until 1986 that it became a reality with the acquisition of 80 percent of the MacGregor Golf Company from golfer Jack Nicklaus. After several loss-making years, the company was divested in February 1997. Amer acquired Wilson Sporting Goods in 1989; in 1994, it acquired Atomic, the Austrian manufacturer of winter sports equipment with brands Atomic, Dynamic (ski), Oxygen (snowboards and in-line skates) and Koflach (mountaineering boots). Five years later, it acquired Suunto, a manufacturer of outdoor and diving instruments.

The company has said a withdrawal from tobacco could take place as early as spring 2004 but will be at the end of 2005 at the latest, when the current agreement ends.

“It’s been clear we need to do this, but it’s been a license deal,” Alfthan said, “so it’s not totally uncomplicated to discontinue the deal.” Transferring the license to a third party is not possible without permission from the licensor. According to the licensing agreement, the license can be terminated at the end of 2005 at the earliest, if not otherwise agreed upon by the licensee and the licensor.

Economically, the tobacco division has helped to bolster overall company sales and profits and, in fact, was the only other segment beside fitness that showed a gain in operating profits for the first nine months of 2003 over 2002 (3 percent compared to fitness’ 4 percent). In 2002, Amer Tobacco reported net sales of Euro 114.4 million, compared to the fitness division’s Euro 147 million. However, with the strengthening and broadening of the European Union, the company estimates that the profitability of the tobacco division will decline, while the profitability of sporting goods will increase.

“Of course, we’ll lose some sales,” Alfthan said, “but on the other hand at the same time we’re looking at other acquisitions to develop our business so we gain back that lost business.”

SNEWS View: Indeed, this is the right time — especially with another fitness industry acquisition around the corner, as insiders have told us. With the goal of being No. 1 in the world, we’re sure acquisitions in different categories and of different sizes will continue to roll to get Amer to that top spot. Not having tobacco in its portfolio will also help its overall stature and image.