24
TOBACCO BUSINESS INTERNATIONAL
SEPTEMBER/OCTOBER 2014
given that people are injured or die from
the “delivery method,” not the nicotine
itself; 3) pre- and post-market controls via
rules and guidance using the pre-market
pathways of substantial equivalence, pre-
market applications and modified-risk
applications, with CTP using science
and acting as a gatekeeper between the
product and the end user; 4) compliance
and enforcement with possible civil and
criminal penalties for violations (48 states
and territories now have enforcement
with all others soon to have it); and 5)
communication for health campaigns like
The Real Cost that focus on initiation
prevention for the most at-risk and
vulnerable groups including the 12-17 age
group, minorities, Native Americans, and
LGBTs.Zeller noted that these campaigns
will include menthol, given that “menthol
plays a role in initiation.”
…Swedish Match North America
(SMNA) in Richmond, Virginia is filing
an application with FDA to have its
General Snus
approved as a modified-risk
tobacco product, with SMNA Director
of Federal Government Affairs Jim
Solyst explaining that SMNA proposes
to say that snus is “substantially less risky
than smoking” and wants permission to
remove one of the required health warning
labels—presumably the one that reads
“WARNING: This product can cause
mouth cancer”—because there is “excellent
scientific evidence” that the product does
not cause oral cancer.
…Assuming antitrust approval by the
Federal Trade Commission (FTC) and the
Department of Justice in the U.S.estimated
at six toninemonths fromnow,the approval
of shareholders of Imperial Tobacco
Group (ITG) at a general meeting, and
completion of the acquisition, Reynolds
American and Lorillard announced that
RAI will buy LO
for $68.88 per share
(LO shareholders will receive $50.50 in
cash and 0.2909 of a share in RAI stock
for each LO share) in a transaction valued
at $27.4 billion including debt.Meanwhile,
for antitrust reasons, ITG will buy RAI’s
KOOL, Salem and Winston brands and
LO’s Maverick brand, as well as LO’s
blu eCig business, and its production
and R&D infrastructure in Greensboro,
North Carolina for $7.1 billion in cash
(debt financed), or $5.6 billion after tax
benefits of $1.5 billion (due to a step-up
in amortization of intangibles), implying a
multiple of 6.9x the brands’earnings before
interest, tax, depreciation and amortization
(EBITDA). British American Tobacco
will maintain its 42 percent ownership in
RAI through an investment of about $4.7
billion in the combined entity. The offer
price represents a premium of 2.5 percent
to LO’s July 14 closing.
…
The Economist
reports that the potential
RAI/LOmerger
may be “a first step toward
ending America’s relative isolation from the
global tobacco market” given that litigation
costs in the U.S. now look more predictable.
RAI and BAT are planning to collaborate
on e-cigs and heat-not-burn products,
while Euromonitor’s Shane MacGuill is
saying that RAI and BAT may, down the
road, try to market conventional brands
like Newport overseas. This would leave
China as the “main holdout against tobacco
globalization,” though Erik Bloomquist of
Berenberg believes that the state-owned
China National Tobacco Corporation could
acquire one of the major global firms in the
future.
…The
brands to be acquired
by ITG
had 2013 volumes of 20 billion pieces and
will bring ITG’s U.S. market share to 10
percent counting its existing three percent
share, yielding net revenue of $2.4 billion,
EBITDA of $0.8 billion, and operating
profit of $0.6 billion, making ITG’s
enlarged U.S. business about 24 percent of
its combined tobacco net revenues.Through
its acquisition of LO’s assets in Greensboro,
ITG will gain about 2,900 employees
including LO’s national sales force.
TMA REPORT
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