介绍： Smoking: All fired up
A huge deal points to broad changes for cigarette makers
From The Economist 20161029

Audio:

0:00



Innovator at work
BIG Tobacco is about to get even bigger. On October 21st British American Tobacco (BAT) announced that it had bid $47bn for the 58% of Reynolds American that it does ...

介绍： Smoking: All fired up
A huge deal points to broad changes for cigarette makers
From The Economist 20161029

Audio:

0:00



Innovator at work
BIG Tobacco is about to get even bigger. On October 21st British American Tobacco (BAT) announced that it had bid $47bn for the 58% of Reynolds American that it does not already own. Though Brexit has weighed on some British companies, BAT is unencumbered, with most of its revenue earned overseas. Many investors expect the deal to go ahead, although BAT might need to puff up its offer. BAT would then become the world’s largest tobacco company by sales and profits.

As in other volume businesses, like beer, some of the merger logic is simply to cut costs. With consolidation, BAT reckons its deal would generate $400m of annual savings. However, it also underscores two big, long-term changes for cigarette-makers.

The first is that America has become an attractive market for tobacco firms and buying Reynolds, whose brands include Camel and Newport, is the easiest way for BAT to grow there. This is a reversal from the recent past. Not long ago America seemed stale and overrun by lawsuits, particularly compared with fast-growing economies. Cigarette firms quarantined their American businesses. In 2004 BAT sold Brown & Williamson, its American subsidiary, to R. J. Reynolds. That gave BAT its stake in the newly dubbed Reynolds American, but shielded the firm from belligerent lawyers. In 2008 Altria, another tobacco giant, split into two: Altria, which sells cigarettes in America, and Philip Morris International, which peddles tobacco elsewhere.


Cigarette-makers remain subject to a vast settlement reached with American states in 1998, but fears of huge class actions have proved overblown. “The damages they’ve had to pay in the cases they’ve lost—in the tobacco company context—have been very small,” points out James Bushnell of Exane BNP Paribas, a stockbroker. Meanwhile other countries have become less hospitable. In Europe, for example, governments are demanding plain packaging devoid of even company logos.

The second change is potentially bigger. Tobacco firms are in fierce competition to come up with safer products, and buying Reynolds gives BAT more R&D clout and a larger portfolio of what the industry likes to call “reduced-risk” items, including e-cigarettes. These are a tiny but growing part of the market.

The race is on to come up with safer, more satisfying offerings. Philip Morris International, which spends nearly twice as much on research as BAT, reckons its new offering, iQOS, might add more than $1bn in profit by 2020. IQOS is a new type of e-cigarette, heating a tube of tobacco rather than a liquid. All this means more deals may be simmering: Bonnie Herzog of Wells Fargo, a bank, predicts that BAT’s move will prompt Philip Morris to bid for its former parent, Altria.


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