E-Cigarettes: Lorillard

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US tobacco company Lorillard entered the UK market in October 2013 when it acquired the U.K.-based e-cig company Skycig. The acquisition came at an approximate price of 30 million pounds in cash and an additional 30 million pounds to be paid in 2016 based on the achievement of certain financial targets. In March 2014, it was announced that, in line with its American brand, Skycig would become Blu Ecigs in May 2014. The rebranding was backed with a £20 million marketing campaign.[1]

Skycig street-ad in Edinburgh (September 2013)
Lorillard is the third biggest cigarette manufacturer in the US, and holds 49% market share in the US e-cigarette market following their acquisition of Blu Ecig in April 2011. [2]

Harm Reduction or Profits

Murray Kessler, Lorillard Chairman, President and CEO, has stated that their investment in e-cigarettes is adjacent to their cigarette business:

"We firmly believe that e-cigarettes may present the most significant harm reduction option ever made available to smokers in the U.S. and abroad and we look forward to working with regulators around the world to confirm this conclusion."[3]

The promise of profits to be made in e-cigarettes might be an important reason to enter the market as well. Although Lorillard actually sold 3.5% more traditional cigarettes in the second quarter of 2013 than a year earlier, Lorillard CEO Kessler is not optimistic: “I still think we’re looking at an industry that’s declining,” he said in late October 2013. Lorillard had to pay $79 million in damages in October 2013 as a result of a decade-long product-liability fight in Massachusetts, and regulators are still questioning the harm of Big Tobacco’s menthol offerings. Issues like these leave the investor community nervous.[4]

Lorillard Acquired by RJ Reynolds

On 15 July 2014, Lorillard was acquired by RJ Reynolds in a deal estimated to cost $27.4 billion, bringing over 8 months of merger discussions to a close.[5] As part of the merger, Lorillard's line of Blu e-cigarettes was sold to Imperial to soften concerns that allowing Reynolds to own both the Blu and Vuse e-cigarette brands would give it an unfair advantage in the market. When speaking of the company's new acquisition, Imperial Tobacco's chief executive Alison Cooper said, "This is a great opportunity to transform our U.S. business and secure a significant presence in the world’s largest accessible profit pool."

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Notes

  1. Skycig electronic cigarettes to become Blu ecigs, Convenience Store News, 21 March 2014
  2. Ben Popkin, The Tobacco Company Gaining Ground With Technology, The Motley Fool, 3 November 2013, accessed December 2013
  3. RTT News, Lorillard Buys British E-Cigarette Maker SKYCIG, Quick Facts, 1 October 2013, accessed December 2013
  4. Kyle Stock, Lorillard Sees Red-Hot Sales of Its Blu E-Cigarettes, Bloomberg Businessweek , 23 October 2013, accessed December 2013
  5. M.J. De la Merced, C. Bray, To Compete With Altria, Reynolds American Is Buying Lorillard, The New York Times, 15 July 2014, accessed July 2014