Rumors have been running through the cigar world for a while now, and I’m here to confirm them … and even give you some details. Rocky Patel Premium Cigars is going to announce tomorrow that it’s buying 50 percent of EO Brands. This deal has raised a lot of questions, and there haven’t been many answers so far. I was able to speak to Eddie Ortega today, in the only interview he’s given on the merger so far, and was able to get some answers.
When Eddie first mentioned the deal to me a few days ago, I was a bit surprised. I interviewed him in early February, while on a tour of Pepin Garcia’s operation in Esteli, Nicaragua, and he told me that he had nothing new planned for 2010. The market was already crowded, he said, and didn’t need any more lines. Strangely, his comment is just as true today as it was three months ago – even with the Rocky Patel merger.
“It’s an investment,” Eddie told me. Rocky picked up half the company, but isn’t changing anything. “He still wants us [the management of EO Brands] to be the public face of the brand,” Eddie explained, “he’ll just own half the business.”
Eddie isn’t selling out or leaving cigars, adding, “I’ll be just as involved as I always have been.” In fact, he believes this investment will make him better able to promote his brands and advance his company. He calls Rocky’s investment “an influx of capital for growth.” EO Brands needed some additional capital, a situation exacerbated by increasingly daunting tax policies, and Patel was ready to deliver. The conversations date back more than a year.
Under the terms of the deal, EO Brands will operate essentially as an independent company under the Rocky Patel umbrella. The cigars – including the 601, Cubao and Murcielago lines – will continue to be made by Pepin. “The blend is not changing,” Eddie emphasized. The 601 black label won’t be made any longer, though, and there will be some changes to the packaging.
Yet, there will be changes. Specifically, Eddie will gain some flexibility. No longer held hostage by cash flow management practices and powered by Rocky Patel’s distribution network, he believes that his brands can grow.
To those concerned about price, I was given a very specific message to pass along:
“Look for prices on all our cigars to drop $2 to $3.50.” Because of his distribution network, he told me, prices were pushed higher, a trend he wanted to turn.
“I’d go to events,” he recounted, “and guys would tell me, ‘I want to buy a box, but I just can’t do it at that price.’” I understand. I love his Trabucos, but at around $13 a stick (in New York City), it’s a pretty serious commitment. With prices able to come down, Eddie believes he can reach a wider smoking audience, and put his cigar into the hands of people who want to smoke them more often.
Put simply: “I want the average Joe to be able to afford my cigars.”
According to Edie, the fit with Rocky Patel is ideal. They’ve been friends for “at least 10 or 15 years,” and they’ve been looking for a way to work together for a while. With this deal, Rocky gets to expand his portfolio of products, and Eddie gets the breathing room he needs to put his cigars in front of more customers.
For once, we’re looking at a merger that truly benefits everyone – buyer, seller … and the customer.
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Tags: 601 cigars, cigar business, cigars, Cubao, Eddie Ortega, EO Brands, Espinosa y Ortega, Murcielago, Pepin Garcia, Rocky Patel
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Tom Johansmeyer
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Travis Lindsay @ TPD
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Tom Johansmeyer
