Tobacco firm Reynolds American to buy Lorillard - NewsOn6.com - Tulsa, OK - News, Weather, Video and Sports - KOTV.com |

Tobacco firm Reynolds American to buy Lorillard

Posted: Updated:
  • NationalMore>>

  • Biden among Urban League meeting speakers in Ohio

    Biden among Urban League meeting speakers in Ohio

    Wednesday, July 23 2014 1:40 AM EDT2014-07-23 05:40:28 GMT
    National Urban League leaders will focus on jobs and pay in U.S. cities during a conference this week that will draw some top Democratic and Republican politicians courting minority support.More >>
    National Urban League leaders will focus on jobs and pay in U.S. cities during a conference this week that will draw some top Democratic and Republican politicians courting minority support.More >>
  • Opening statements set in porch shooting trial

    Opening statements set in porch shooting trial

    Wednesday, July 23 2014 1:30 AM EDT2014-07-23 05:30:47 GMT
    After two days of jury selection, lawyers are poised to give opening statements in the trial of a Detroit-area man who opened his front door and shot an unarmed woman, killing her.More >>
    After two days of jury selection, lawyers are poised to give opening statements in the trial of a Detroit-area man who opened his front door and shot an unarmed woman, killing her.More >>
  • Survey finds sharp increase in teen use of HGH

    Survey finds sharp increase in teen use of HGH

    Wednesday, July 23 2014 1:22 AM EDT2014-07-23 05:22:35 GMT
    Experimentation with human growth hormones by America's teens more than doubled in the past year, as more young people looked to drugs to boost their athletic performance and improve their looks, according to a...More >>
    Experimentation with human growth hormones by America's teens more than doubled in the past year, as more young people looked to drugs to boost their athletic performance and improve their looks, according to a new,...More >>
By MICHAEL FELBERBAUM
AP Tobacco Writer

RICHMOND, Va. (AP) - Joe Camel is bulking up to take on the Marlboro Man.

Camel cigarette maker Reynolds American Inc.'s $25 billion deal to buy Newport maker Lorillard Inc. creates a formidable No. 2 tobacco company in the U.S. behind Marlboro maker Altria. It also creates a powerhouse in menthol cigarettes, which are becoming a bigger part of the business and gives the combined company some breathing room even as people smoke fewer cigarettes every year.

The deal announced Tuesday also creates a new major player in the country's tobacco market, the U.K.'s Imperial Tobacco, which is buying some of the companies' other brands including Kool and Winston and instantly becomes the king of e-cigarettes in the U.S.

The deal also is a big indication that Reynolds sees electronic cigarettes as a promising side business but not the whole future. To get the acquisition done, Reynolds is ceding a commanding lead in the e-cigarette business by selling off Lorillard's dominant Blu e-cig brand, highly visible because of its TV commercials featuring Stephen Dorff and Jenny McCarthy, to Imperial.

Reynolds and Lorillard value the deal at about $27 billion including debt. It is expected to close in the first half of 2015 but will likely face regulatory scrutiny. Lorillard shareholders would receive $50.50 in cash for each share and 0.2909 of a share in Reynolds stock at closing, a combination valued by the companies at $68.88 per share.

After the deal, company, which will remain based in Winston-Salem, North Carolina, is projected to have more than $11 billion in revenue.

To help to ease regulatory concerns about competition, Imperial Tobacco Group will buy the Kool, Salem, Winston, Maverick and Blu e-cig brands for $7.1 billion, tripling its share of the U.S. cigarette market. Imperial already owns Fort Lauderdale, Florida-based Commonwealth-Altadis Inc., maker of USA Gold cigarettes.

Reynolds will keep its Camel, Pall Mall and Natural American Spirit brands and acquire Lorillard's flagship Newport brand, giving it 34 percent share of the U.S. retail cigarette market.

Newport and Camel are two of the largest players in menthol cigarettes. On its own, Newport accounts for 37 percent of the menthol segment. While people are smoking less, buying 19 percent fewer cigarettes overall in 2013 than five years earlier, menthol cigarette sales have fallen by only 7 percent and its share of the market grew 4 percentage points to about 31 percent, according to market researcher Euromonitor International.

"Cigarette volume in this country has been declining for a very, very long time, but ... it's important as we see consolidation and growth in market share, to have a true portfolio of iconic brands," Reynolds CEO Susan Cameron said in an interview with The Associated Press, who also noted the potential to expand Newport in the western U.S. and Camel in the East, regions where each are weaker.

Despite selling Blu, Reynolds will remain in e-cigarettes and will focus on expanding its rechargeable Vuse e-cigarette brand, which expanded nationally last month after quickly becoming the top-selling brand in its initial test-market states of Colorado and Utah.

Cameron said the company is confident in Vuse's "game-changing" technology that monitors and adjusts heat and power to deliver more consistent puffs.

But the menthol and e-cigarette markets aren't a sure bet. Both face the possibility of heavier regulation.

The Food and Drug Administration is weighing restrictions on the minty smokes after a review concluded while there's little evidence to suggest that they are more or less toxic or contribute to more disease risk than regular cigarettes, they likely pose a greater public health risk than regular cigarettes because younger people are more likely to start using them and that menthol smokers have a harder time quitting.

The agency also has proposed regulating battery-powered e-cigarettes, banning sales to anyone under 18, adding warning labels and requiring agency approval for new products. The devices produce vapor, usually nicotine-laced, instead of smoke.

Raising prices and cutting business costs has kept the industry profitable. The deal will help with the cost-cutting end: Reynolds expects to save about $800 million a year in costs.

The net effect on jobs and the economy in the American South's tobacco country is uncertain. Reynolds, which has about 5,200 full-time employees and produces its cigarettes at its 2 million-square-foot Tobaccoville, North Carolina, plant, said it plans to hire, primarily in manufacturing, over 18 months following the closing.

Imperial is buying Lorillard's manufacturing and offices in Greensboro, North Carolina, along with about 2,900 employees. Imperial did not say whether it would use Lorillard's headquarters.

The combined company will challenge Altria Group Inc., owner of Philip Morris USA, which holds about half of the retail cigarette market. The company declined to comment on Tuesday's news.

The companies said British American Tobacco PLC, which makes Kent and Dunhill cigarettes overseas, will maintain its 42 percent stake in Reynolds, and Lorillard shareholders will hold a 15 percent stake.

Reynolds and British American Tobacco also agreed to share technology related to the development and commercialization of next-generation tobacco products, including cigarettes that heat tobacco rather than burning it, and other nicotine-delivery products.

Lorillard's stock fell $5.47, or about 8 percent, to $61.75 in afternoon trading Tuesday. Reynolds' stock fell $3.27, or about 5 percent, to $59.91.

___

Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Powered by WorldNow
News On 6
303 N. Boston Ave.
Tulsa, OK 74103
TULSA'S OWN TM
GREEN COUNTRY'S OWN TM
Oklahoma's Own Newson6.com is proud to provide Oklahomans with timely and relevant news and information, sharing the stories, pictures and loves of Oklahomans across our great state including Tulsa's Own and Green Country's Own.
All content © Copyright 2000 - 2014, WorldNow and KOTV. All Rights Reserved. For more information on this site, please read our Privacy Policy and Terms of Service.