11 / 50
26
TOBACCO BUSINESS INTERNATIONAL
MAY/JUNE 2015
Mergers and
Market Share
In the cigarette category, a large merger is edging toward fruition.
W
ith the Reynolds American/
Lorillard merger looming on
the horizon, there’s much
speculation about how the deal will pan
out in terms of shifts in the competitive
landscape. While the deal awaits final
regulatory approval, industry observers
are optimistic about its future, with
Wells Fargo’s Bonnie Herzog rating the
probability of Federal Trade Commission
(FTC) approval at 90 percent.
“An overwhelming 98 percent of
retailers expect the FTC to approve
the deal, with some retailers expecting
minor modifications or additional brand
divestitures since several believe it will
be challenging for Imperial to maintain
share,” wrote Herzog in a recent report
on the merger, who notes that the biggest
potential issue has been whether Imperial
and some of the smaller manufacturers
will be able to effectively compete
with the newly created entity. “Despite
this hurdle, we believe…negotiations
are progressing towards ultimate FTC
approval of the deal as is or with very
minor modifications to ensure Imperial
will have a fighting chance.”
One key consideration by FTC of
relevance to retailers is the potential
impact of Reynolds adding Newport to
its Every Day Low Price (EDLP) retailer
program on shelf space constraints for
Imperial. “The majority of our retailer
contacts do not expect the FTC to require
changes to Reynolds’ EDLP for the deal
to be approved and expect Newport’s
growth will accelerate if added to this
program,” notes Herzog.
Currently, the deal calls for Winston-
Salem, North Carolina-based Reynolds
American to purchase Greensboro, North
Carolina-based Lorillard for $27.4 billion.
The combined entity would retain the
Newport, True and Old Gold brands,
while selling Winston, Kool, Salem and
Maverick brands to Imperial Tobacco for
$7.1 billion. The real coup for Imperial,
however, would be acquiring Lorillard’s
blu e-cigarette brand. Imperial would
also acquire Lorillard’s manufacturing,
R&D and headquarters in the transaction,
which would become part of a new
U.S.-based subsidiary for the UK-based
company, located in Greensboro.
With business going on as usual while
the industry awaits a decision from FTC,
here’s a look at cigarette market share by
retail channel:
CIGARETTES
CATEGORY MANAGER
of retailers
believe
Reynolds’
EDLP program will
make it
more
difficult
for
Imperial to compete
post merger.
85%
45
40
35
30
25
20
15
10
5
1
Sticks Sold Over 13 Weeks Ending 6/28/14
Total Discount
Cigarettes Sold
(15 Billion)
Total Premium
Cigarettes Sold
(45
Billion
)
Premium Vs. Discount
Cigarettes
Number of Sticks Sold in Billions