Author: Staff Writer

Imperial Tobacco has confirmed that it is in discussions with Reynolds American Inc. (RAI) and Lorillard about the possible acquisition of certain brands and assets owned by RAI and Lorillard.

Imperial’s statement supports speculation that RAI is in talks over the acquisition of Lorillard because any such merger would require the divestment of brands so as to avoid anti-trust issues.

Bonnie Herzog, managing director for beverage, tobacco and convenience store research at Wells Fargo Securities, who has been commenting on a possible RAI/Lorillard deal since at least early March, said today that, based on reports by the Financial Times and Bloomberg, an announcement was expected “very soon.”

Herzog said she expected that Imperial, through its U.S. operation, Commonwealth Brands, might acquire several of the smaller, nonpriority brands in an attempt to pre-empt any potential U.S. FTC (Federal Trade Commission) anti-trust issues.

Earlier this week, further speculation had it that British American Tobacco, which already owns 42 percent of RAI, might make a bid to acquire the remaining 58 percent when, at the end of this month, a standstill agreement between BAT and RAI is due to expire.

Herzog maintained, however, that a RAI/Lorillard deal was more likely, though she added that, if a BAT/RAI merger did occur, ultimately it was likely that Lorillard would be acquired by a combined BAT/RAI.

She said yesterday that the RAI/Lorillard deal would have the “blessing” of BAT.

Meanwhile, in a statement posted on its website, Imperial said it noted the recent speculation relating to a potential transaction involving RAI and Lorillard.

“Imperial confirms it is in discussions with Reynolds and Lorillard to evaluate a possible acquisition of certain assets and brands owned by Reynolds and Lorillard,” the statement said.

“The USA remains one of the world’s largest and most profitable cigarette markets. Imperial would proceed with an acquisition only if its terms met strict transaction criteria.

“There can be no certainty as to the terms upon which any acquisition or related debt financing may be agreed or whether any transaction will take place. A further announcement will be made if and when appropriate.”

Anti-tobacco activists in China have called for Beijing’s proposed smoking control legislation to be more tightly defined, according to an Ecns.cn story.

The legislation, which is currently under review, is scheduled to take effect next year.

It includes a proposal that smoking be banned in public places, but Zhang Jianshu, head of the Beijing Patriotic Health Campaign Committee, who was invited to take part in the review, said he was urging lawmakers to define in the legislation exactly what was meant by “public places.”

She said too that 15-meter smoke-free buffer zones should be established at places such as sports stadiums and railway and subway stations. While there was a growing consensus for a smoking ban in enclosed public places, the concept of buffer zones needed further promotion.

Outdoor places such as parks, which were frequented by children, should also be made smoke-free under the new law, she said.

Meanwhile, Cui Xiaobo, a professor of social medicine at Capital Medical University in Beijing, said the law ought to ban tobacco sales to minors.

Currently, a ban on sales to minors was included in the law on the protection of minors, but who was supposed to enforce that was not clearly defined, he said.

The value of Malawi’s leaf tobacco exports during the first five months of this year, at $137.7 million, were increased by 58 percent on those of the first five months of 2013, $87 million.

The exports, which, in the case of the 2014 figures, were from the Reserve Bank of Malawi, and which, in the case of the 2013 figures, were from the Tobacco Control Commission, were reported by Ventures Africa.

Malawi was one of the world’s most tobacco-dependent economies, said Ventures Africa, something that had contributed to the country’s vulnerable economic position. Tobacco made up 53 percent of Malawi’s exports and tobacco sales generated $165 million per year for Malawi.

Japan Tobacco Inc’s domestic cigarette sales volume during June, at 8.9 billion, was down by 6.5 percent on that of June 2013, 9.5 billion, according to preliminary figures issued by the company today. The June 2013 figure was down by 4.2 percent on that of June 2012.

Volume during January–June 2014, at 55.1 billion, was down by 1.8 percent on that of January–June 2013, 56.1 billion, which was down by 1.4 percent on that of January–June 2012.

JT’s market share stood at 60 percent during June, at 60.7 percent during January–June and at 60.5 percent for January–December 2013.

JT’s domestic cigarette revenue during June, at ¥50.2 billion, was down by 3.6 percent from its June 2013 revenue, ¥52.1 billion.

Revenue during January–June 2014, at ¥306.1 billion, was down by 0.7 percent on that of January–June 2013, ¥308.4 billion.

Tobacco seed sales for Zimbabwe’s 2014–2015 flue-cured season, at 827,010 g, were up by almost 6 percent on those at the same stage of preparation for the 2013–2014 crop, 781,135 g, according to a story in The Herald quoting the Tobacco Industry and Marketing Board’s latest bulletin.

Planting of the country’s irrigated tobacco is due to start Sept. 1, while the rain-fed crop will be planted from October to early December.

Philip Morris International is due to host a live audio webcast at www.pmi.com/webcasts from 9 a.m. Eastern Time on July 17 to discuss its 2014 second-quarter results, which will be issued around 7 a.m. the same day.

During the webcast, which will be in listen-only mode, CFO Jacek Olczak will discuss the company’s results and answer questions from the investment community and news media.

An archived copy of the webcast will be available until 5 p.m. Aug. 15 at www.pmi.com/webcasts.

Slides and script will be available at www.pmi.com/earnings.

The head of the World Health Organization, Margaret Chan, has told Chinese leaders there is a “real risk” that China’s economic achievements of the past three decades could be canceled out by the huge burden of coping with diseases linked to smoking, according to a story by Zhuang Pinghui for the South China Morning Post.

Chan urged the Chinese government to strengthen tobacco control “to save huge numbers of lives and to ensure the country has a healthy workforce to continue its development.”

“Every year more than one million people die as a result of tobacco-related illness,” she said. “This is a terrible statistic.”

During a visit to the mainland, Chan met with leaders including Premier Li Keqiang, Health Minister Li Bin and the deputy chairman of the National People’s Congress Chen Zhu.

According to the Post, she said that she had told leaders that tobacco-related illnesses such as cancer, cardiovascular disease and diabetes would have a devastating impact on the mainland and its workforce.

“You can’t walk properly, you will be so short of breath that you won’t be able to work,” she said.

More must be done in the U.K. to help people with mental health issues stop tobacco smoking because a new study suggests that such people cost the economy more than £2 billion a year, according to a Press Association story.

The study, published in the journal Tobacco Control, was said to have estimated the cost to the economy based on the World Health Association’s “economics tobacco tool kit.”

Researchers found that during 2009–2010, the estimated cost to the U.K. of smoking among people with mental health issues was £719 million for treating diseases caused by smoking, £823 million for work-related absenteeism and £797 million associated with productivity loss through premature mortality—a total cost of £2.34 billion.

“Smoking in people with mental disorders in the U.K. imposes significant economic costs,” the researchers from the Universities of York and Nottingham were quoted as saying.

“The development and implementation of smoking cessation interventions in this group should therefore be a high economic and clinical priority.”

The incidence of smoking among mentally ill people is 50 percent higher than is the incidence of smoking in the general population, the study authors noted.

British American Tobacco could be on the verge of acquiring Reynolds American Inc., according to a story by Geoff Foster for This is Money’s Market Report.

BAT’s shares, Foster noted, had fallen by 19.5 pence to 3555.5 pence amid growing speculation it was ready to splash out billions of pounds buying the 58 percent of RAI it doesn’t already own.

In making such an acquisition, he added, BAT would stub out any plans RAI might have had to buy Lorillard.

A standstill agreement between BAT and RAI expires at the end of this month, at which point BAT will be free to bid to raise its 42 percent share.

Foster said that RAI’s shares traded at about $61.40 in New York early on July 8 and that rumors were rife that BAT could be willing to pay more than $75 a share to gain full control.

Broker Citigroup has said it would be advantageous for BAT to buy RAI since the deal would boost BAT’s earnings per share by about 10–13 percent, give it ownership of one of the best e-cigarette platforms and access to Reynolds’ heat-not-burn technology.

However, Bonnie Herzog, managing director, beverage, tobacco and convenience store research at Wells Fargo Securities, while acknowledging the rumors linking BAT and RAI, said she believed a deal between RAI and Lorillard was more likely.

In any case, she said, even if a BAT/RAI deal did emerge, ultimately it was likely that Lorillard would be acquired by a combined BAT/RAI.