The cash-and-shares offer worth $47bn – about twice the size of the Lorillard deal – would give BAT the 58% of Reynolds that it does not already own, and create a company bigger than Marlboro maker Altria, currently the largest U.S. tobacco firm.
Reynolds has not yet responded to the offer.
For the vapour industry, the effects of a Reynolds-BAT merger might not be immediately felt: the two have, in any case, been working together closely for some time on e-cig technology and last year formalised a cross-licensing arrangement.
BAT’s main current product in the nicotine alternatives sector is the Vype e-cigarette, well-established in the UK. Between that and the Ten Motives business which it bought earlier this year, BAT has about a 35% share of the UK mainstream retail market for e-cigs, according to Nielsen figures. (Nielsen data doesn’t cover vape stores.)
It also last year launched in Romania the Glo iFuse, a hybrid e-cigarette/heat-not-burn product which uses both e-liquid and actual tobacco, and it has obtained a licence from the British pharma regulator for its nicotine inhaler Voke, although that is widely seen as a testing of the waters and Voke is not on sale.
Reynolds, meanwhile, has the Vuse e-cigarette – the U.S. leader in mainstream retail, with a 37% share of that market by value, again according to Nielsen. It has had less success with heat-not-burn, where it was an early pioneer with the unsuccessful Eclipse product and then failed to follow that up with Revo, withdrawn from sale last year.
Both companies are continuing to develop their portfolios. Reynolds says it will later this year “expand the availability” of Vuse Vibe, a cartridge/closed-tank system which it describes as combining “the ease of use of a cigalike product…with the performance of a tank system”. It is unclear whether this means further testing of the product or a fully-fledged U.S. rollout.
Reynolds also makes a nicotine replacement therapy (NRT) product under the Niconovum Zonnic brand.
BAT, meanwhile, is preparing for the “imminent” launch of the Vype Pebble in Europe, which – like Reynolds with the Vibe – it says has been developed in response to changing consumer preferences.
It also plans to start testing Glo, a heated-tobacco device which will employ tobacco components called Neostiks sharing branding with BAT’s Kent combustibles, and which it says “offers significant advantages over existing products in the tobacco heating products category”. This is understood to not be the same product as the Glo iFuse trialled in Romania.
Camel and Kent
But of course, it is the conventional tobacco business as much as vapour and alternative products which will drive the decision of Reynolds shareholders on whether to accept the BAT offer.
In that market, BAT’s main brands include Dunhill, Kent, Lucky Strike and Pall Mall. Similarly-sized Reynolds has Camel and, the new jewel in its crown, Newport – acquired as part of the Lorillard amalgamation last year and largely responsible for the massive hike in the company’s sales and income over the past nine months. It is also enjoying success with the Natural American Spirit additive-free cigarette brand and with Grizzly moist snuff.
And whether the takeover goes ahead or not, there may be changes ahead at Reynolds as Susan Cameron, the president and CEO who steered the Lorillard takeover to completion, is succeeded by Debra Crew on 1st January.
Crew is currently president and CEO of R.J. Reynold Tobacco Company, the main cigarette operation and largest unit of Reynolds American.
What This Means: A possible BAT takeover of Reynolds has been long discussed, unsurprisingly given BAT’s large minority stake. If it does go ahead, the big question for the e-cigarette industry in immediate terms is whether a combined BAT/Reynolds would go beyond sharing products, and move toward a genuine, rationalised convergence.
But the longer-term structural implications for the tobacco industry, and by extension the e-cig industry, are important too. Already a joining of forces between Japan Tobacco International (JTI) and Imperial Tobacco is being mentioned as the logical next step.
And a BAT/Reynolds merger would leave Altria, so recently the gorilla of the U.S. industry, looking distinctly lonely – unless, of course, it gets together again with Philip Morris International (PMI), as has also been suggested. Given PMI’s origins as part of Altria, that has obvious attractions.
It’s also worth noting that it would result in British companies holding two of the three top spots in the U.S. tobacco sector: BAT through Reynolds, and Imperial through the combustible brands it acquired (along with the Blu e-cig) from Reynolds as a spin-off from the Reynolds-Lorillard deal.
– Barnaby Page ECigIntelligence staff
Photo: Mark Goebel