Big Tobacco Merger In The Works To Unite Camel, Newport, And Electronic Cigarettes
The world of big tobacco was shocked on Friday when tobacco giants Reynolds America and Lorillard announced their intent to unite the two companies within a merger. The popular cigarette brands, Camel and Newport, will unite in the merger, along with Electronic cigarettes developed and manufactured by the two conglomerates. The merger will conclude with Reynolds America purchasing Lorillard. Electronic cigarettes are reported to be a major decision maker in the deal.
Although the merger is in the works, there are still approvals that need to be accomplished and signed off on before the merger can become official. The merger would create a huge stake in the electronic cigarette market for the united company. Blu e-cigs already capture 40 percent of all electronic cigarette sales, and Vuse, Reynolds America’s brand, has just recently gone on sale Nationwide. Bonnie Herzog, of Wells Fargo, is excited about the deal and its possible impact globally.
“This transaction in our view will be very positive for the global tobacco industry and could be the just the beginning of future transactions with e-cigs/vapor being the underlying catalyst,”
The expected merger is not without its controversy, though. Newport Cigarettes are often marketed toward an African American demographic, which some believe to perpetuate a stereotype. This was carried further when a Reynolds executive was quoted as referring to smokers by, “The poor, the young, the black, and stupid.”
Despite the controversy, Newports remain a popular brand of cigarettes and continue to sell well. Phillip Gorman, an analyst at Morningstar, believes the merger will only keep the Newport brand at the peak of its game.
“They’re really in a sweet spot of the industry. It has a very specific demographic, it’s highly popular among African-American smokers.”
Another potential issue with he merger, although not a direct issue with uniting the two companies, affects the Newport brand in general. Due to the unique candy-like flavor of menthol cigarettes, the FDA may be considering a ban on menthols due to their potential appeal to younger smokers. Jennifer Haliski, of the FDA, stated the following in response to a potential ban.
“FDA will not prejudge any potential regulatory action nor comment on the timing of possible regulatory actions,”
Although electronic cigarettes are becoming more popular as new brands are introduced, they only bring in approximately $2 billion in annual sales across all manufacturers, whereas traditional cigarettes bring in approximately $100 billion in sales. A merger between Reynolds America and Lorillard would make their portion of big tobacco just a little bigger, and give them more muscle when it comes to setting the bar for cigarette prices.
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