Merger creates a stronger global tobacco and ‘Next Generation Products’ company
British American Tobacco (BAT) and Reynolds American Inc. have agreed to an offer for BAT to acquire the remaining 57.8% of Reynolds it does not already own. According to a press release, the merger will create a stronger global tobacco and Next Generation Products (NGP) company to deliver sustained long-term profit growth and returns.
“Our combination with Reynolds will benefit from utilizing the best talent from both organizations. It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world,” said BAT’s chief executive, Nicandro Durante.
The two companies will create a balanced presence in high-growth emerging markets and high profitability developed markets, combined with direct access to the U.S. market, and create a pipeline of vapor and tobacco heating products to the fastest growing NGP markets.
Post transaction, the group will be a larger, broader, more geographically diversified business with a unique footprint providing continued exposure to high-growth emerging markets, direct access to the opportunity in the U.S. market, and a broad presence in key developed markets, notes a press statement.
In the U.S. market, Reynolds has three out of the four top-selling cigarette brands, and the benefits from the Lorillard acquisition have given Reynolds a 34% cigarette market share, with Newport as the leading brand in menthol, Pall Mall as the leading value brand and Natural American Spirit as the fastest-growing premium brand. Reynolds’ American Snuff subsidiary also has a 33% share of the growing moist snuff segment, led by its Grizzly brand.
BAT has a significant presence in emerging markets across South America, Africa, the Middle East and Asia, and emerging markets will account for 60% of volume in the enlarged group. Over the last five years, revenue per pack in these markets has grown at more than twice the rate compared to developed markets. With generally low cigarette pack prices and expectations of continued growth in consumer disposable income over the long term, the future profit growth opportunity remains strong. BAT sees emerging markets as the source of future profit growth for the BAT group and developed markets as the source of current profit growth.
BAT’s multi-category strategy in NGPs is aimed at satisfying different consumer moments, with the capability of effectively addressing rapidly developing consumer behaviors. In December 2016, Glo, an innovative tobacco heating product, was launched in Japan with encouraging early results. In addition, Reynolds’ Vuse is one of the leading vapor brands sold in retail.
BAT and Reynolds anticipate the transaction to close during the third quarter of 2017.