Reynolds-lorillard deal would make e-cigarette leader – business insider

NEW YORK (Reuters) When Lorillard Inc bought the blu eCigs brand two years ago, the electronic cigarette had a 10 percent share of a tiny U.S. market, generating about $50 million in sales. It was available in only 12,000 retail outlets and over the Internet.

Today, the U.S. tobacco company s marketing and distribution muscle, including its use of frequent TV commercials and concert sponsorships, has taken blu into 149,000 outlets and driven its U.S. market share to about 47 percent. Annual sales have quadrupled to more than $200 million.

The turbo charged growth means that blu and Lorillard’s British SKYCIG e cigarette brand may be the assets with the sweetest potential for Reynolds American Inc as it holds talks over a deal to acquire its U.S. rival. Both brands would complement Reynolds’ new Vuse e cigarettes brand, due to go national this summer, and vault the combined company into an undisputed leadership position in the young market.

And the gains in e cigarette sales may have only just begun. Some Wall Street analysts see e cigarettes and other “vapor products” overtaking traditional tobacco sales within six years.

“Acquisition of Lorillard would give Reynolds a distinct advantage in the e cig market,” said Steve Marascia, Director of Research at Capitol Securities Management.

Reuters reported last week that the companies were in late stage talks that would combine the second and third largest U.S. tobacco companies, according to people familiar with the matter. A combination of Lorillard and Reynolds, which is 42 percent owned by British American Tobacco, would create a formidable rival to Altria Group Inc, which owns the Marlboro brand and controls about 50 percent of the traditional cigarette market in the U.S.

E cigarettes are slim, reusable, metal tube devices containing nicotine laced liquids that come in exotic flavors. When users puff, the nicotine is heated and released as a vapor containing no tar, unlike conventional cigarette smoke.

Taking the lead position in e cigarettes is appealing but given the market s nascent nature, it is not a sure bet.

New brands could easily grab market share, and there have been signs that other vaping products, including larger “tank” based devices, may be gaining popularity. These products are typically less expensive to use, and can provide a stronger nicotine delivery.

“I think it’s more of a hedge,” said Morningstar analyst Philip Gorham in reference to the e cigarettes part of any Lorillard acquisition. “But if e cigs take off, it will be the future, and they’ll be glad they invested.”

MORE THAN MENTHOL

Lorillard’s popular Newport menthol cigarette brand, whose sales have held steady even as cigarette smoking in the United States has declined, is likely to be the immediate driver of any deal. Newport accounts for 37 percent of the U.S. menthol market and 12.5 percent of overall cigarette sales.

U.S. sales of conventional cigarettes are forecast to drop to $15.3 billion in 2023 from $28.3 billion in 2013, according to a recent report from Wells Fargo Securities. In contrast, it sees revenue from e cigarettes and other vapor devices growing to $24 billion by 2023 from $1.5 billion last year.

Altria is also getting into the game, though it only introduced its MarkTen brand in August 2013 in Indiana. It plans a nationwide rollout next month.

Lorillard bought blu two years ago from founder Jason Healy and his investors for $135 million. A year later, it paid $49 million for SKYCIG, now the leading e cigarette in Britain.

The deals were part of a strategy by Lorillard CEO Murray Kessler to expand its offerings beyond conventional cigarettes. Formerly at Altria, he helped build that company’s Skoal and Copenhagen into two of the best selling smokeless, or chewing tobacco, brands.

Morningstar analyst Gorham estimates blu is currently worth $500 million to $1 billion, though it may account for a higher number in any deal for Lorillard, whose overall market value is currently about $22 billion. “Because Big Tobacco really wants a piece of the action, I could be low balling it,” he said.

Since the vapor market is still in its early stages, it is difficult to anticipate how it may evolve.

Regulatory changes could have a big impact. In April, the U.S. Food and Drug Administration issued proposed rules that would ban sale of e cigarettes to anyone under 18 and require companies to list ingredients. But the rules so far would not restrict flavored products, online sales or advertising.

The big tobacco companies are expected to be in a much better position than their dozens of smaller rivals to handle any new oversight thanks to their long experience dealing with regulators and battling anti tobacco lawsuits.

They may also have an upper hand in assuring quality control as the industry comes under stepped up scrutiny after recent horror stories about the dangers of accidental poisoning from some ingredients on the market.

“The big three tobacco guys will be the big three e cigarette companies because of their resources, relationship with distributors and ability to comply with the FDA faster than competitors,” RBC Capital Markets LLC analyst Nik Modi said, referring to the U.S. Food and Drug Administration.

(Reporting By Jilian Mincer Editing by Martin Howell)

Top 10 cigarette brands – list dose

Named after Chesterfield Country, Virginia, Chesterfield cigarettes are one of the most popular brands among the tobacco smokers. Originally produced by Liggett & Myers Tobacco Company, the brand was sold to Philip Morris, also the manufacturer of Marlboro. The nicotine level in Chesterfield does not go beyond 0.8mg, a reasonable amount. With a wonderful taste due to extra fine tobacco usage and a very delicious aroma, Chesterfield is considered as a highly appreciated brand of cigarettes, probably made more popular by the fact that 007 smoked it all the time!

9. Lucky Strike

Nick named as Luckies by its lovers, Lucy Strike became hugely popular with its advertising campaign of “It’s Toasted”. It focused on the figure conscious segment, that is, ladies. “Reach for Lucky instead of sweet” was the tag line. This made it immensely desirable with the women, along with the fact that the price was very affordable. Owned by British American Tobacco groups, Lucky’s publicity campaign emphasized on the quality of tobacco that went into making the cigarette, resulting in a very rich flavour. The nicotine level also is reasonable with 0.8mg. Also, it recently released the menthol cigarettes under it’s brand, for the menthol lovers. Overall, an internationally acclaimed brand by the smokers, Lucky Strike is better than the most.

8. Pall Mall

Pall Mall revolutionized the tobacco industry when it appeared in the market. Manufactured by R.J Reynolds, the biggest name in the industry, the distinctive feature of Pall Mall was the size of the cigarette. It outmatched every other cigarette ever made. 85mm is no ordinary size. Another feature is that it is prepared only natural ingredients. This gives it a very personal flavor, and the rich aroma is something that is hard to resist. Reynolds’ most popular brand, Pall Mall is a high quality cigarette at a very affordable price. Definitely a favorite in the smoking chambers.

7. Dunhill

Manufactured by the world’s second largest tobacco company, British American Tobacco, Dunhill cigarettes are a premium brand with a higher price than most of the brands. Made from Virginian tobacco, what makes its taste so exclusive is the technique by which the tobacco leaves are cut. One inch of the leaf is cut 46 times! The company has always striven to make more and more improvements in the quality of the cigarette, hence have been able to incite brand loyalty among the inhalers of Dunhill. The smell of fresh tobacco, as confessed by the users, goes a long way in soothing the nerves.

6. Kent

Another product of the British American Tobacco company, Kent cigarettes were introduced in the market when the terror of cancer by tobacco had become widespread and the people were on the lookout for filtered cigarettes. Kent did the job. With a surprisingly low content of nicotine, it gives its consumer the most transparent of pleasures as the risk of being harmed by smoking is reduced to a great extent due to a special filter possessed by these cigarettes. There are plethora of variations that the cigarette comes in, for each type of smokers. Named after Herbert Kent, a former executive at Lorillard Tobacco Company, Kent cigarettes enjoy a substantially large following of customers and is one of the most sold brand of smokes,

5. Camel

A product of R.J Reynolds, Camel cigarettes may as well be the most smoked cigarettes, being a high quality smoke at a reasonable price. Whoever claims to know cigarettes, knows Camel. The distinctive feature is probably the symbol, the trademark a camel in the middle of a desert amidst sand dunes and palm trees. Camel cigarettes are made of a mixture of Turkish and Virginian tobacco. Available in three versions Camel Blue, Camel Full Flavor and Camel Silver there is no such place where Camel cigarettes are not in demand. They come in an awful of varieties, so as to suit everyone’s tastes. Constant modifications in marketing and publicity have kept the sales on high for this brand.

4. Marlboro

Starting the journey as a cigarette for the ladies, Marlboro has come a long and successful way. Owned by Philip Morris International, these are maddeningly popular brand of cigarettes, and favorite of every second smoker you may meet. The main aspect that made it such a success was the advertising. The cowboy ad appealed to the masculine segment of the population to a very large extent. Previous to that the advertisements highlighted the cigarettes for the females. Then it forayed into filtered type, and came out with a wider coverage. Philip Morris always targeted the youth through its advertisements and was no doubt immensely successful. Marlboro is a high quality cigarette at a price not to balk at. The image of the Marlboro Man digs deep. No wonder the young and old men favor it alike.

3. Parliament

It is produced by Philip Morris again, the owner of highly acclaimed brands like Marlboro. Parliament cigarettes are not advertised that heavily though. In fact, they are scarcely advertised. The exquisite taste it possesses works as a salesman. The distinctive feature of these cigarettes is the use of recessed filter in them. It gives a richness and hardness to the flavor that makes Parliamentt stand out from the rest. Just as the name suggests, it is strong, one of its kind and has gained acceptance in the elite circles of smokers. The tar content is low, reducing the harmful effects. Parliament cigarettes is one of the most popular, one of its kind brand. Besides, the variations cater to the varied interests. Parliament super Slims, Parliament Night Blue, Parliament Aqua Blue and Parliament Silver. One for all kinds of preferences.

2. Davidoff

Davidoff is a Swiss tobacco brand, owned by the Oettinger Davidoff group. However, the manufacturing of Davidoff cigarettes is taken care of in Dominican Republic by Hendrik ‘Henke’ Kelner. All other tobacco products under Davidoff brand are otherwise managed by Oettinger. Davidoff cigarettes include a wide variety few being Slims, Classic, Milds, Menthol etc. It is known to be impossible to match the flavor and taste of Davidoff with any other cigarette. The tobacco that goes into its preparation is of a very high quality, a rarity as said. This makes the aroma so enriching and the taste so enriching that one can forget everything, indulge in the luxury and pleasure that Davidoff is. It is regarded in a very high esteem in the industry, and has been overly successful in making its way to every smoker’s lips.

1. Cigaronne