Tobacco Industry: Tobacco Industry Merger

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Where there’s smoke, there’s often fire — especially in a tobacco merger…

Why Big Tobacco keeps demolishing the FDA in federal court
Since 2009, the cigarette industry has won three major challenges to make their products more accessible to kids
Oct 4, 2014
By Myron Levin
In 2009, Congress passed landmark legislation directing the Food and Drug Administration to regulate tobacco products, aiming to cut the toll from the leading preventable cause of disease and death. Three times since, however, cigarette and e-cigarette companies have filed successful legal challenges to thwart rules intended to make their products less appealing to consumers–and less accessible to kids.
The three cases, which, among other things, have blocked graphic cigarette warning labels and delayed regulation of e-cigarettes for at least a few years, were decided in favor of industry plaintiffs by the same federal judge, Richard J. Leon of the U.S. District Court in Washington, D.C. Leon’s rulings have reflected concern about government overreach, and a tone of deep skepticism about the FDA’s legal positions “Please! This conclusion defies common sense,” he wrote, dismissing one of the agency’s arguments.
Given how cases are normally assigned, the fact that Leon was assigned all three is extraordinary—and extraordinarily good luck for the industry.
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Reynolds, Lorillard Dump Blu E-Cigarettes In $27 Billion Merger
July 15, 2014
By Brian Solomon
Where there’s smoke, there’s often fire — especially in a tobacco merger.
On Tuesday morning, Reynolds American RAI -0.59% agreed to buy rival Lorillard LO +1.13% in a $27.4 billion deal ($68.88 per share in cash and stock) that will create a credible second-place challenger to cigarette giant Altria. The deal ends Lorillard’s independent reign as the oldest continuously operating US tobacco company and brings together some iconic cigarette brands, like Camel, Newport, Pall Mall, and American Spirit.
Some brands will also be spun off in the deal. Imperial Tobacco Group , another competitor, will pay just over $7 billion for cigarette brands Kool, Salem, and Winston — tripling its size in the large American market. Imperial is also acquiring Blu, the leading e-cigarette brand.
Meanwhile, British American Tobacco , Reynolds’ largest shareholder, has backed the deal with a $4.7 billion investment that will maintain its 42% ownership stake in the combined company.
“Reynolds American and Lorillard have complementary core strengths and the addition of Newport to our operating companies’ existing key brand portfolios – including flagship brands Camel, Pall Mall, Natural American Spirit and Grizzly – will enhance our ability to compete in the combustible cigarette and smokeless categories,” Reynolds CEO Susan Cameron said in a statement.
The combined company expects revenues of $11 billion, with operating income of about $5 billion. Touting large cost savings, Reynolds expects the transaction to be accretive to earnings in the first full year.
One head-scratching part of the merger is the divestiture of Blu, which Lorillard bought for $135 million back in 2012. The e-cigarette market is small compared to traditional tobacco, but it is by far the fastest-growing segment of the industry. Blu is the market leader in e-cig sales, but the new Reynolds-Lorillard company will rely instead on the Vuse brand, which Reynolds launched on its own in 2013. Cameron says Vuse “offers superior technology and has received very positive early results in its national rollout.”
The merger had been rumored for months and confirmed last week, but investors may have been expecting more. Lorillard shares crashed 7.7%, while Reynolds sank 4.5%. In London, British American fell 1.7% and Imperial dropped 2.6%. Altria also fell 2.5%.

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