Reynolds will Buy Lorillard for 27.4 Billion Dollars
Reynolds American Inc. stated this morning that it would buy Lorillard Inc. for 27.4 billion dollars, merging the No. 2 and No. 3 US tobacco companies to become a more formidable rival to compete with the Altria Group Inc, the No. 1 tobacco company in the United States. The merger would create a 56 billion dollar colossus and would allow the combined companies to control 42 percent of the tobacco market in the United States.
In addition to this massive purchase, Reynolds said it would sell its KOOL, Salem and Winston and Lorillard’s Maverick and Blu Cigs brands along with other assets to Britain’s Imperial Tobacco Group for $7.1 billion in cash in order to address antitrust issues. Among the brands that are being sold, it seems rather strange that Reynolds would sell the Blu Cigs brand to the Imperial Tobacco Group since Blu Cigs is the top electronic cigarette brand in the United States. And with the electronic cigarette market on a constant rise whereas the market tobacco is on a steady drop, this doesn’t seem like a good decision. But for Reynolds, selling Blu Cigs to Britain is a fantastic decision because the No. 2 tobacco company has its own electronic cigarette brand called VUSE.
Buying Lorillard would give Reynolds massive power over the tobacco market and the electronic cigarette market. Reynolds would control 42 percent of the tobacco market and would own the leading U.S. menthol cigarette Newport. And by selling Blu Cigs to the Imperial Tobacco Group in Britain, Reynolds’s VUSE electronic cigarette brand would rise to the top in the American electronic cigarette market relatively unchallenged. None of the electronic cigarette companies in the United States can match the financial power of the Reynolds-Lorillard combination. Only the Altria Group, the No. 1 tobacco company in the US, would stand in their way. Unfortunately, The Altria Group is lagging behind the electronic cigarette market as the makers of Marlboro will not have their own line of electronic cigarettes until the year 2018 or so recent news indicate. The brand would be called MarkTen.
The merger of Reynolds and Lorillard will change the game for the electronic cigarette market and the tobacco market. The Reynolds-Lorillard company will provide corporate muscle to the already growing electronic cigarette market. VUSE will become a leading electronic cigarette brand thanks to the millions of dollars in advertisements, both online and in print. On the other hand, it remains unclear what the Reynolds-Lorillard company will do with the tobacco market. There has been a steady decline in sales volume for tobacco cigarettes and analysts have predicted that tobacco bonds will fall in value. The future for tobacco is dark due to the rise of electronic cigarettes and other vaping products and consumers making smarter choices.
A great change will come if this merge is approved.