12
TOBACCO BUSINESS INTERNATIONAL
MAY/JUNE 2014
NEWS & TRENDS
MAY/JUNE 2014
According to news in the
Financial Times
,
Reynolds American has hired advisory in-
vestment bank Lazard to assess and define
a potential deal to acquire Lorillard for up-
ward of $20 million.
A deal to combine Lorillard, the third-
largest seller of cigarettes in the U.S., with
Reynolds, the runner-up to top-seller Altria
Group, would bring Camel and Pall Mall
under the same corporate umbrella asMav-
erick and Newport, the top-selling menthol
cigarettes in the U.S. (British American To-
bacco owns 42 percent of Reynolds Ameri-
can). Together, the merged companies
would own more than two-thirds of the
country’s menthol cigarette market. Other
Lorillard brands include electronic cigarette
companies Blu Cigs and Skycigs, which
Lorillard says made up more than half of all
U.S. e-cigarette sales in the fourth quarter
of 2013. Reynolds has its own e-cigarette
brand, Vuse, currently in test markets with
an expected nationwide launch planned for
later this year.
Details about the purchase price, the
leader and name of the combined com-
pany, and whether Reynolds would look to
acquire Lorillard in its entirety or only spe-
cific brands remain unclear as spokesmen
fromboth companies declined to comment
on the speculative news story. Regardless
of the details, the deal would face significant
regulatory and financial hurdles, but Bon-
nie Herzog, aWells Fargo Securities analyst,
claims that a combined company could
capture “substantial cost savings and syner-
gies, and the general tobacco environment
could become more rational.
“Based on our analysis, we believe [that
Reynolds] could pay up to $80 per share for
[Lorillard], incorporating synergies and cost
savings of around $400 million (eight per-
cent of Lorillard’s revenue),” writes Herzog
in a report on the potential deal. She went
on to enumerate the possible benefits of the
deal, which she described as: “(1) manufac-
turing (potentially closingeither Lorillard’s or
Reynolds’s plant, which makes sense given
we expect cig volume declines to accelerate
as e-cigs continue to displace volume); (2)
leveraging RAI’s U.S.-based e-cig manufac-
turing and co-development of future gen-
erations of e-vapor products; and (3) sales
force and other headcount reductions.”
Possible Merger for Reynolds
American and Lorillard
Deal would be complicated, but could benefit both companies
Republic and
Johnson Creek
Team up on
Vaping Endeavor
The two companies will join forces
as a “smoke juice” supplier.
Republic Tobacco and Johnson Creek
Enterprises of Hartland, Wisconsin have
joined forces to form a premier “smoke
juice” (e-liquid) supplier of vaping products
in the U.S. Republic Tobacco is the nation’s
largest distributor of roll-your-own and
make-your-own tobacco products and ac-
cessories, including such famous brands as
Job, Top, Gambler, Drum, Largo and Tube
Cut. Founded by Christian Berkey in 2008,
Johnson Creek Enterprises is a leading
smoke juice production facility. Through its
affiliates, Republic has taken an equity inter-
est in Johnson Creek Enterprises.
Johnson Creek has been on the fore-
front of ISO9001 smoke juice production
by manufacturing e-liquid made from U.S.-
sourced ingredients and bottled in Ameri-
ca, an unusual combination in the growing
e-liquid category. The company has been
widely recognized as the supplier of e-liq-
uid for the popular Blu e-cigarettes.
“Republic Tobacco has been carefully
studying the ‘e-market’ for a number of
years now, and we finally found the per-
fect fit for our company, both in terms of
superior reputation and product quality,”
says Steve Sandman, president of Repub-
lic Tobacco. “Consumers in the ‘e-category’
have shown [that] they prefer to make their
own ‘e-product’ by selecting their favorite
delivery device and their preferred liquid.
We believe that this is a new make-your-
own consumer, and now Republic will be
able to offer the highest quality products on
the market. Also, both retailers and whole-
salers have been waiting for a reputable
company to supply this growing category,
and they will be very pleased that Republic
is stepping into the forefront of the catego-
ry as it develops with such an outstanding
company as Johnson Creek.”
New York Smoker’s
Rights Group Fights Back
Smokers’ rights group NYC Citizens Lobbying Against Smoker Harassment
filed a lawsuit March 25 challenging New York City’s recent ban on the use
of e-cigs in areas where smoking is already prohibited, reports the Associ-
ated Press. The suit reportedly argues that the smoke-free law’s regulation
of both environmental tobacco smoke and e-cig vapor violates the “One
Subject Rule” of the city’s charter.
