Reynolds American Purchases Lorillard for $25 Billion, But Cans Blu Ecigs
This week, Reynolds American spent $25 billion on the ultimate tobacco buy out, acquiring Lorillard, the third-largest tobacco company in the United States. It’s one of the biggest tobacco mergers we have ever seen, but it’s not unexpected. Rumors have been swirling for months that Reynolds American was flirting with the possibility of buying out Lorillard. Many have speculated that the merger interest was due to Lorillard’s rising success in the electronic cigarette industry, but that turns out to be completely wrong. Immediately after purchasing Lorillard, the executives at Reynolds American turned around and sold Blu Ecigs to UK-owned Imperial Tobacco.
This historic merger will bring Camel and Newport cigarettes under one roof and it could create a massive profit for tobacco investers. Reynolds American is already the second-largest tobacco company with Lorillard trailing behind in third place. Now as the two combine, they will wage the ultimate war on the leading tobacco giant, Phillip Morris.
It’s surprising to see Reynolds American dump Blu Ecigs, considering that this ecig brand is currently the top selling vaping line in the country. Lorillard originally acquired Blu in 2012 for $125 million and since then, the ecig has soared to unforeseen levels of success. Just last month, Blu products held 42 percent of ecig sales in convenience stores. Wells Fargo analysts predict that ecig sales draw $1.4 billion dollars annually. While tobacco companies face major hurdles and restraints in selling cigarettes, they can freely advertise ecigs without any federal restrictions.
In spite of a favorable market for Blu to continue its growth, Reynolds American made the quick decision to dump Blu along with tobacco brands Winston, Salem, and Kool. Imperial Tobacco has purchased these four brands for an estimated $7.1 billion, putting them in a good position to take the third ranking in American tobacco sales and instantly gain the top position for ecigs sales.
Many analysts question why Reynolds would make such a hasty decision to sell Blu, but Reynolds CEO Susan Cameron said they had chosen to sell Blu in order to place total focus on their own ecig brand, Vuse. “Divesting Blu was a business decision. And it was important to Imperial as part of this divestiture package and ensuring that they were a strong #3 player. I think in context, we have such confidence in Vuse’s superior technology that it is a game-changing product. Its early market results demonstrate that. And we believe that Vuse will be very successful and is showing great signs as we have embarked on our national rollout. So we are very confident that Vuse can continue to compete with Blu. And we look forward to that continuing.”
Imperial Tobacco told the press that they are excited to take on Blu and will make it a major focus in the coming months. CEO Alison Cooper said Blu had the potential to take Imperial “from no presence in e-cigarettes in the U.S. to market leadership with the number one brand.” When questioned about how Imperial convinced Reynolds to part with the popular ecig brand, Cooper was very vague and jokingly said, “It’s clearly my extreme charm.”
Do you think Reynolds American was smart to sell Blu or was this possibly the craziest move we’ve ever seen from big tobacco?