Reynolds American Acquisition Of Lorillard
In the summer of 2014, Reynolds American Tobacco had planned to merge with Lorillard, their main competitor in the tobacco and e cig industries. These plans were big news in the tobacco industry, stock market, and financial periodicals. Their deal was to top $100 million, with plans to sell off BluCig (acquired by Lorillard in 2012) in the near future and focus on Reynolds own brand of e cigs: Vuse.
This arrangement was subject to uncertainty from the start. Watchdogs insisted on further study and discussion. As it turns out, those watchdogs got their way. The merger is not off but delayed. If all expectations are met, Lorillard will merge with Reynolds American in 2015 with no set date established at this time.
The best Reynolds can say is that they will take ownership before the middle of the year. From the Lorillard side of the deal there is bound to be a slightly different take. In particular, the company will be concerned about the loss of jobs.
The Role of British American Tobacco
Reynolds has had to take one of their major shareholders — British American Tobacco — into consideration as they prepare for the merger. With more than 40% of shares in their hands, it is important that Reynolds ensure BAT is in favor of the merger. Again, looking at their point of view there are bound to cons now voiced by Reynolds, one of which will be the complete dominance of one company in the tobacco industry.
Meanwhile, the FTC still wants more information about the acquisition which will make Reynolds the biggest tobacco company in the United States by far. Their nearest rival will be Altria, owner of Green Smoke.
The Meaning of Merger
When Reynolds and Lorillard combine, there will still just be one company and one direction. Much of what Lorillard employees and shareholders are familiar with will change. Their analog brands will be replaced or merged; BluCig will be sold off, and Vuse will gain Reynolds’ complete attention.
Tobacco cigarettes are not going to die off right away, but some of the brands you love (and an element of competition) will be gone. As happens when a single corporation dominates, there is less accountability and competition to drive quality, innovation, and ensure fair prices.
E Cig Growth
But there will be a different sort of competition in Reynolds’ future. They plan to adjust their strategy and put more energy into developing this side of their company. E cigs are the future, with cigarettes losing out a little at a time to these electronic alternatives monthly. While BluCig will still be around, the Vuse line will take advantage of what is sure to be cut-backs and economic streamlining, and other e cigs could also benefit as BluCig loses its giant backer.