14
TOBACCO BUSINESS INTERNATIONAL
SEPTEMBER/OCTOBER 2014
NEWS & TRENDS
SEPTEMBER/OCTOBER 2014
HigHligHts
RJR to Study
Secondhand
E-Cig Smoke
Reynolds American plans to con-
duct a clinical trial in Atlanta,
Georgia on secondhand smoke,
or vapor, from e-cigarettes. The
clinical study will look to quan-
tify the emission factors of e-cig-
arettes. The move comes as RJR,
which launched its Vuse digital va-
por cigarettes last year, escalates
its presence in the category.
MarkTen
Continues
Rollout
NuMark, a subsidiary of Altria
Group, has rolled out the Mark-
Ten brand to 60,000 stores in the
western U.S. “We are very pleased
with our progress in innovative
products,” said Marty Barrington,
chairman and CEO of Altria, dur-
ing a phone call with investors.
“NuMark also continues to inte-
grate Green Smoke into its busi-
ness platform with its supply chain
capabilities.”
The rolling launch has allowed
Altria and NuMark to ensure that
the product is available and to
avoid out-of-stocks, said Bar-
rington, who noted that distribu-
tion will move east over the next
few months.
Reynolds to Acquire Lorillard
$27.4 billion merger would create a $56 billion
cigarette colossus.
Reynolds American (RAI), the parent company of R.J. Reynolds (RJR) and maker
of Pall Mall and Camel cigarettes, plans to merge with Lorillard (LO), which man-
ufactures the Newport brands. Representing a deal between the No. 2 and No.
3 companies in the industry, this merger will create a true rival to the industry’s
dominant player, Altria Group, according to industry observers. “We believe this is
a value-creating transaction for RAI and LO shareholders, creating a formidable No.
2 player in the U.S.,” says Bonnie Herzog, managing director of beverage, tobacco
and convenience store research for Wells Fargo Securities.
“From a strategic standpoint, this combination is absolutely compelling,” said
Susan Cameron, Reynolds’s president and CEO, during a conference call about
the deal. “It will give us a unique portfolio of iconic brands, as well as add a geo-
graphic benefit from RJR’s strength in the western U.S. and Lorillard’s complemen-
tary strong presence in the eastern U.S.” Significantly, the deal will bring Newport,
which leads the U.S. menthol category with a 12.6 percent market share, into R.J.
Reynolds’ fold.
Surprising many in the industry, the merger plan also calls for Reynolds to sell
several brands, including blu eCigs, KOOL, Salem, Winston and Maverick, and
other assets and liabilities to Imperial Tobacco for $7.1 billion. This aspect of the
deal—likely meant to appease regulatory concern about the potential for an indus-
try duopoly—will make the British company the new No. 3 tobacco company in
the U.S. Currently the fourth biggest player in the American tobacco market with a
single-digit percentage of market share, Imperial makes Gauloises cigarettes and
Montecristo mini-cigars.
Industry observers were surprised that RJRwould be willing to give up the popu-
lar blu e-cigarette brand, which holds 45 percent of U.S. e-cigarette market share.
However, CEO Susan Cameron combated critics by touting the “superior technol-
ogy” of Vuse, describing it as “a product we believe will be a game changer in the
e-cigarette space. Since its expansion into Colorado in 2013 (its first major market),
Vuse has delivered outstanding results and quickly became the category leader. …
We have just expanded to 15,000 additional outlets, and we are on our way to full
national distribution; all of which illustrates that Vuse has a bright future ahead of it.
We will continue to compete with blu, as we have with Vuse already.”
Still, many in the industry question the decision. “[blu] being divested to Imperial
surprised us as we believed RAI would pursue a multi-brand portfolio strategy in
vapor,” said Herzog, who also noted that the post-deal menthol concentration in
RJR cigarettes could be viewed unfavorably by investors concerned about a poten-
tial ban on menthol.
If it goes through, the deal would transform Imperial “from a distant No. 5 in the
[U.S.] market with a three percent share, to No. 3 with a 10 percent share; from no
presence in e-cigarettes in the U.S., tomarket leadership with the clear No. 1 brand;
from a business that has focused on 19 states, to national distribution supported by
an experienced sales force,” noted Imperial CEO Alison Cooper during a webcast
about the potential transaction. “The primary assets for us will beWinston and blu.”
