In a stunning Friday announcement, The British American Tobacco (BAT) Company made a $47 billion takeover bid to purchase controlling interest in Reynolds American Inc. If the deal goes through, the result would be the largest tobacco company worldwide based on estimated revenues and market share. The cash-plus-shares deal would see BAT jump back into the U.S. market after a 12-year absence and is also expected to produce a substantial surge in Big Tobacco’s role in the development of e-cigs and vaping technology.
London-based BAT already owns approximately 42.2 percent of R.J. Reynolds but wants to increase their interests to a whopping 57.8 percent. To make this happen, BAT offered $56.50 per share to Reynolds American in a nonbinding deal. The closing price of the stock on Thursday was only $47.17 per share.
British American Tobacco makes a big play
Reynolds currently holds about 35 percent of the U.S. cigarette market, perhaps largely due to is Newport and Camel brands. Newport is the best-selling menthol cigarette in the United States while Camel comes in third among conventional brands. Meanwhile, both companies already hold a technology-sharing agreement for the ongoing development of e-cigarettes and vaping products. In a letter to the Reynolds Board of Directors, Chief BAT Executive Nicandro Durante made the following statement.
(Related Article: DESPITE FDA DEEMING REGULATIONS, E-CIG MARKET IS BOOMING)
“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the U.S. market…The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next-generation products company.”
‘Next-generation products’ and the U.S. vaping industry
To the average Wall Street investor, this takeover move might seem like one Big Tobacco Company attempting to gain a larger portion of the conventional cigarette market by purchasing another. However, in Durante’s own statement, BAT seems to have an eye on an even bigger prize – next generation products, otherwise known as e-cigs and vaping technology. In fact, the letter goes on to state that the newly combined companies will deliver “a world class pipeline of vapour and tobacco heating products” both in the U.S. and abroad.
What does this mean to American vape shops?
Vaping advocacy groups are watching this proposed merger very closely. The relationship between Big Tobacco and the worldwide vaping industry has been somewhat strained over the years. When the FDA deeming regulations were first announced last May, vape shops were surprised to learn that they would now be forced to adhere to the same Pre-Market Tobacco Application (PMTA) process as conventional tobacco products. A single PMTA could cost in upwards of $1 million per product, which most Mom and Pop shops simply cannot afford.
But Big Tobacco companies like Reynolds American and British American Tobacco surely can. These corporations have very deep pockets and a tremendous amount of political influence on Capitol Hill. Is the vaping industry secretly being usurped by Big Tobacco? If what BAT says is true and the company is slowing steering its focus towards vaping and e-cigs products and away from tobacco cigarettes, then the U.S. vaping industry may have more to fear than the FDA deeming regulations.
Vape-friendly UK might be after more than the U.S. tobacco market
The UK is much more vapor-friendly than the United States. Shortly before the FDA deeming regulations were first announced, the UK’s Royal College of Physicians (RCP) released a scientific study indicating that e-cigs are 95 percent safer than smoked tobacco. Furthermore, the RCP also states that vaping products should be encouraged as smoking cessation devices by medical professionals rather than demonized. The FDA takes the direct opposite stance.
If BAT has it way and takes over U.S.-based Reynolds American, what is the company’s ultimate goal? Do they want to dominate the worldwide tobacco market? Or are the covertly striving to takeover the American vaping industry? Perhaps it is both.
(Related Article: ROYAL UK MEDICAL GROUP TAKES STRONG STANCE IN FAVOR OF E-CIGS)
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- Tags: British American Tobacco, FDA Deeming Regulations, PMTA, Reynolds American, Royal College of Physicians