When one corporation buys another, the headquarters spoils tends to go to the buyer, according to a story by Richard Craver for the Winston-Salem Journal that touched upon the sale of Lorillard Inc. and the proposed sale of Reynolds American Inc.
With the loss of each headquarters, well-paying jobs went to the acquiring company and there was typically a siphoning and redirection of community support funds.
Greensboro had experienced two body blows, one of which had occurred when ‘the main assets of Lorillard Inc. were sold in June 2015 to ITG Brands LLC, the US subsidiary of Imperial Brands Plc, in a four-party deal involving Reynolds American Inc, Craver wrote.
When it came to British American Tobacco’s likely $49.4 billion purchase of Reynolds, civic and elected officials were said to have their fingers crossed that philanthropic contributions would remain unaltered as much as possible.
Reynolds spokesman Bryan Hatchel said philanthropy was a big part of Reynolds’ legacy, going back to the founder Richard Joshua Reynolds. “He started a legacy of philanthropy that reached into this community of Winston-Salem, and we continue that effort today,” Hatchell said. “Part of our transforming tobacco strategy includes transforming communities in which our employees live and work.”
Winston Salem’s mayor Allen Joines has said part of his confidence of a business-as-usual mindset from BAT is the fact it had been embedded in the Reynolds cultures since acquiring its 42.2 percent ownership stake in July 2004.
British American Tobacco and Reynolds American Inc. have agreed the terms of a recommended offer for BAT to acquire the 57.8 percent of Reynolds it does not already own.
In a note posted on its website, BAT said the transaction had been unanimously approved by the transaction committee of independent Reynolds directors established to evaluate the BAT offer.
The transaction had been approved also by the boards of Reynolds and BAT.
‘The parties expect the transaction to close during the third quarter of 2017, subject to: obtaining affirmative votes from BAT and Reynolds shareholders; obtaining anti-trust approvals in the US and Japan; registration of BAT shares with the SEC; approval of the BAT shares for listing on the LSE and the BAT ADRs on the NYSE; and, other customary conditions,’ the note said. ‘Completion of the merger is not subject to any financing condition.’
BAT said the acquisition would create a stronger, truly global tobacco and next generation products (NGP) company to deliver sustained long-term profit growth and returns with:
‘A balanced presence in high growth emerging markets and high profitability developed markets, combined with direct access to the attractive US market;
‘A portfolio of strong, growing global brands, bringing together ownership of Newport, Kent and Pall Mall;
‘A truly global NGP business, with a world class pipeline of vapor and tobacco heating products and access to the fastest growing NGP markets;
‘At least $400 million of annualised cost synergies anticipated by the end of year three, supporting continued margin improvement;
‘EPS and DPS accretive in the first full year and targeting mid-single digit EPS accretion in year three, with the transaction beating the Group’s WACC for the US by year five;
‘Enhanced cash generation with increased control of a significant proportion of group cash flows;
‘Continued commitment to BAT’s dividend policy with a pay-out ratio of at least 65 percent;
‘A continuing strong financial profile, targeting a solid investment grade credit rating through progressive deleveraging.’
“We are very pleased to have reached an agreement with the transaction committee and board of Reynolds and we look forward to putting the recommended offer to shareholders,” said BAT’s chief executive, Nicandro Durante.
“We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team’s strategy, including its acquisition of Lorillard, which we supported with our own investment in 2015.
“BAT has consistently executed a winning strategy and has a proven track record of delivering strong results and returns for its shareholders while successfully investing for future growth.
“Our combination with Reynolds will benefit from utilising the best talent from both organisations.
“It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world.
“We believe this will drive continued, sustainable profit growth and returns for shareholders long into the future.”
British American Tobacco and the board of Kind Consumer Ltd have devised a new way to commercialize their Voke nicotine inhaler, according to a note posted on BAT’s website.
In 2014, BAT received a medicinal license for Voke from the UK’s Medicines and Healthcare Products Regulatory Agency and the plan was to launch it in the UK by the end of 2015.
Voke was billed as a safer alternative to cigarettes – in line with nicotine gum or patches – and one that could be prescribed by doctors.
In its recent note, BAT said the two companies had reached a mutually satisfactory agreement on the financial aspects of the new way of commercializing the product.
‘BAT’s manufacturing, intellectual property and know-how assets will be assigned to Kind in return for deferred, contingent payments,’ the note said.
‘Accordingly, Kind will take back ownership for the commercialization of Voke, allowing Kind to embrace the full economics of the opportunity.’
Kingsley Wheaton, MD next generation products at BAT, was quoted as saying: “We will be prioritizing and focusing on the vapor and tobacco heating consumer segments within our next generation product portfolio with our Vype and Glo brands. We do recognize the focus and single-mindedness Kind can bring will be an asset to the speedy commercialization of Voke.”
Meanwhile, Paul Triniman, chief executive of Kind, said that his company would be working hard to ensure that this new medical product got to consumers as fast as possible. “We will be seeking a new global partner, or possibly several regional partners, to accelerate the distribution of the nicotine inhaler during 2017,” he said
“We believe the differentiated technology, effective nicotine delivery and discreteness of Voke offers an important niche in the multi-billion dollar, fast-growing, harm-reduction market. We are excited about bringing this unique product to the market as soon as possible.”
With the introduction of Pebble, BAT steps up its commitment to next-generation products.
By Stefanie Rossel
BAT”s Vype store in Milan
Milan’s hip Navigli area provided a fitting backdrop for the opening of British American Tobacco’s (BAT) first Vype-branded retail outlet. Inaugurated on Dec. 1, the flagship store features 150 square meters of brightly illuminated space coolly styled in black and white with street art elements. A wall of wood panels displays the company’s latest product, Pebble, which comes in a variety of vibrant colors.
BAT calls the most recent addition to its Vype family a “game changer,” not only because of its minimalist, unusual design but also because of its user-friendliness. To get the device going, the user simply attaches a leak-free e-liquid cartridge. The vaping process is initiated with the push of a button; when not in use, the device switches off automatically.
With typical usage, a battery charge lasts all day. Developed in collaboration with the U.S. design company Creata, Pebble is accompanied by a range of six flavors, including “Golden Tobacco,” “Smooth Vanilla” and “Wild Berries.” Each of them is available in four different nicotine levels, starting with zero.
The company says it has composed its e-liquids with a high vegetable glycerin content for a richer, smoother, satisfying vapor. The Pebble starter kit retails at £17 ($22.74); a set of refills containing two cartridges costs £5.99. According to BAT, one refill package allows for up to 700 vapes. While the e-liquids are produced in Europe, BAT has chosen a Swedish company based in China to provide high-quality hardware for the vaping device.
“We chose Milan for our first flagship Vype store because it is the world capital of trends, fashion and design—so it sets the bar high,” said Kingsley Wheaton, BAT’s managing director for next-generation products (NGPs). “If you want to test yourself against competition there, you need to tell a better story and have a better product.”
In addition to driving awareness about the fledgling vape segment, the Milan store will support brand-building and marketing efforts for the Vype family, which was launched in Florence, Italy, in 2015 and is now present in Bologna and other Italian cities, where the products are being sold through retailers. Vype is also available online.
Italy is a good place to launch new vapor products because, after a period of waning interest due to low-quality offerings, Italian consumers have found their way back to e-cigarettes as the marketplace is increasingly regulated and cleaned up, according to Andrea Conzonato, president and CEO of BAT Italy. “Italian consumers want high-quality vape products; dual use of combustible and e-cigarettes is very common,” he said.
Pebble is a ‘game changer,’ according to BAT
Gathering retail experience
BAT’s Milan store opening coincided with a similar event in the U.K., where Philip Morris International (PMI) inaugurated its first iQOS-branded store in London while launching its tobacco-heating product (THP) nationwide.
In late 2015, BAT acquired the Chic Group, Poland’s market leader in the vapor segment, which gave the company not only a 65 percent market share but also more than 800 retail stores. In April 2016, BAT took over Ten Motives, which came with six retail stores in and around Manchester, U.K.
BAT’s and PMI’s moves into the retail sector illustrate the vast difference between the manufacture and marketing of conventional cigarettes on the one side and those of alternative nicotine-delivery products on the other.
Unlike traditional smokes, reduced-risk products require continuous research, innovation and spending. Most of the new products also need explanation. Often, consumers must get thoroughly acquainted with them in order to convert.
Therefore, closeness to the consumer is key. “Next-generation products are a consumer technology business, with the consumer as the anchor,” said Wheaton. “It is very exciting and also changing BAT from the inside out. Creating NGPs creates a positive tension—how many times in history does a new consumer goods category come along?”
To provide a clearer distinction for consumers, BAT has divided its NGPs into four categories. Apart from vapor products such as the Vype Pebble, the company offers THPs such as Glo; hybrids such as iFuse; and licensed medicinal products, a category that includes the company’s nicotine inhaler Voke. “We want to be the world’s leading NGP business by 2020,” Wheaton stated. “As consumers are different and have different needs, we think the best way to achieve this goal is to offer a large range of reduced-risk products.” Over the past five years, the company has invested $1 billion across all NGP categories.
BAT describes itself as a multicategory company. Thus far, it has made the greatest headway in the vapor segment, with Vype being well-established. Wheaton estimates that the global NGP market will be worth £15 billion in the next five years. “At the moment, the global vaping market has a value of £6 billion,” he said. “We see vaping as the bigger market in the future. While the profitability of tobacco-heating products may be higher than that of vaping products, THPs will be a much smaller market, we believe, though they might become big in certain markets, such as Japan.”
THPs, he added, were for “proximate consumers,” who look for an experience close to that of combustible cigarettes. “Vapers, in contrast, want a whole new world. The secret is to offer a comprehensive portfolio that caters to all needs.”
Wheaton does not expect to see a world without combustible cigarettes in the next 20 or 30 years. “But consumers should have the choice,” he said.
Kingsley Wheaton
A Japanese phenomenon?
When it comes to THPs, BAT is lagging behind its rival Philip Morris International, whose iQOS is currently available in 10 markets, among them Switzerland, Italy and Germany. Reportedly more than 1 million cigarette smokers have switched to iQOS since its initial pilot launch in 2014. On Dec. 6, PMI filed an application with the U.S. Food and Drug Administration seeking modified-risk tobacco product status for iQOS.
Growth rates of iQOS have been strongest in Japan, though, where it leads the THP market with a share of more than 5 percent. The device was rolled out nationwide in Apri 2016. BAT entered the Japanese market last month with its Glo, which it introduced in the city of Sendai. Glo, which comes with Kent-branded “Neostiks” consumables, will at first retail exclusively at convenience stores and tobacco stores. In December, BAT opened a Glo-branded flagship store in Sendai. Like the recent Vype shop, it shall be the first in a series. “We have taken time with Glo to get it right,” Wheaton explained. “We may not be the first to launch a THP in Japan, but we have the right product in the right place. Our top priority for Glo in Japan is to test and learn.” The company has plans to go national as soon as possible; a rollout beyond Japan is planned for 2017.
Japan is a unique market for THPs, as its consumers are extremely interested in the latest gadgets and technologies. The Japanese are also highly socially considerate and concerned about the impact of their behaviors on others, Wheaton said.
Besides, while Japan treats vapor-producing products that use tobacco leaves as pipe tobacco, it heavily regulates nicotine liquids, reducing competition from alternatives. Therefore, Wheaton believes that Japan offers most of the opportunity for THPs, representing perhaps as much as 40 to 50 percent of overall potential demand. “Heat-not-burn may become big in certain markets, but vapor offers more opportunity in Europe and the U.S.,” he said.
Innovation is key
Outside the U.S., BAT is already the world’s largest vapor business, according to the company. Its vapor products are currently present in 10 markets, among them the U.K., where they have a market share of 35 percent; Germany (8 percent); and France (5 percent). BAT aims to be in 30 to 40 markets by 2020.
The proposed acquisition of Reynolds American Inc. would make BAT an NGP market leader in the U.S. as well.
In Europe, meanwhile, Chic has reported double-digit growth since its acquisition by BAT. Chic could eventually be used as a hub to enter other European markets, with Chic’s production center in western Poland providing exports of its own successful Polish brands under the BAT umbrella, in addition to the Vype range.
The latter will soon get yet another line extension: The company announced that it would release a new product, Vype Raptor, in the second half of 2017. According to BAT, Vype Raptor will use a new technology to atomize and vaporize e-liquids.
Apart from that, the company continues to work on its recently launched products. In late 2015, BAT introduced iFuse, a hybrid vaping device, which was originally launched in Bucharest and then extended to broader Romania. The product has high trial rates and could gain a market share of 0.3 to 0.4 percent, said Wheaton. “We are currently substantially improving the performance of the product and will launch the second generation of iFuse in about a year.”
Scientists at British American Tobacco (BAT) have proposed a new scientific framework that could be used to assess the reduced-risk potential of nicotine and tobacco products currently being developed.
The new assessment framework employs a four-stage process that uses lab-based and clinical tests along with real-world observations of individual and population perception and use, according to BAT.
“We propose that this assessment framework will help us build the required evidence base to demonstrate that novel tobacco and nicotine products can deliver a net population health gain in comparison to cigarette smoking,” Dr. James Murphy, head of reduced-risk substantiation at BAT told delegates at the Tobacco Science Research Conference (TSRC), in Naples, Florida, USA, in September.
The first step in the process is the characterization of the product, which includes laboratory-based testing. This is followed by clinical testing to determine whether toxicant reductions measured in the laboratory are observed in consumers when the products are used. The third step is to determine what impact, if any, this reduction in toxicants will have on a person’s individual risk as well as the collective risk of the population using the products.
According to BAT, in contrast to modified cigarettes, innovative new tobacco and nicotine products have significantly reduced toxicant levels.
“We have observed reductions of 90 percent and more in the levels of certain toxicants present in these new tobacco and nicotine products and these are manifesting reductions when the aerosols are applied to in vitro tests, which can mimic some key disease processes and endpoints,” said Murphy. “These early-stage results demonstrate that in comparison to reduced toxicant prototype cigarettes, these new products have a greater potential to demonstrate disease relevant changes in humans—tests that we plan to do over the next 12-18 months.”
R.J. Reynolds Tobacco Co. (RJR) has signed a technology-sharing term sheet with British American Tobacco (BAT) that provides a framework for collaboration and mutual cross-licensing of vapor product technologies through 2022.
The term sheet is the first step in reaching a definitive agreement under which RJR and BAT will collaborate to develop next-generation vapor products. Specifics of the agreement are still being negotiated by the companies, who have a goal of reaching a definitive contract by the end of the year. The collaboration will include a process for joint research and development activities, as well as cooperation on regulatory, scientific and manufacturing issues related to vapor products.
“This proposed technology-sharing agreement makes great business sense as we lead the transformation of the tobacco industry, allowing us to continue to deliver innovative, high-quality vapor products to adult tobacco consumers seeking smoke-free alternatives,” said Debra Crew, R.J. Reynolds’ president and chief commercial officer.
Philip Morris International (PMI) and British American Tobacco (BAT) have sued the British government over plain-packaging legislation passed in March. The law, which would take effect from May 2016, requires cigarettes to be sold in packages of uniform shape and size that feature only the brand name and contain prominent graphic health warnings. England is the third and most populous country to introduce plain-packaging laws, following Australia and Ireland.
PMI argues that England’s plain-packaging regulations “unlawfully deprive PMI of its trademarks” and should therefore be overturned, according to an article in TheNew York Times. London-based BAT stated that the British government had left the company “with no other choice” and released a statement saying that “any business that has property taken away from it by the state would inevitably want to challenge and seek compensation.” Japan Tobacco International has also indicated it would challenge England’s legislation. The tobacco companies are seeking unspecified damages, which could total billions of dollars if granted.
A statement released by the English Department of Health said it would “not allow public health policy to be held to ransom by the tobacco industry” and that it “would not have gone ahead with standardized packaging unless we had considered it to be defensible in the courts.”
This video was originally published by Mercantos Investor Video, a provider of financial news, featuring video interviews and webcasts from FTSE100 and FTSE250 companies.
British American Tobacco will double its purchases of Philippine tobacco as it plans to invest more than $50 million in the country this year, reports The Manila Bulletin.
James Lafferty, general manager of BAT Philippines, said the company will buy 3.6 million kg of Philippine tobacco, valued at between $12 million and $14 million, in the 2012-2013 planting season.
Following the passage of tobacco tax reforms in late 2012, BAT Philippines announced the company would invest at least $200 million in the Philippines over five years starting in 2013.
The company intends to grow its market share, introducing new Lucky Strike variants and other brands. It is also looking into constructing a cigarette factory in the Philippines.
BAT currently employs 300 people directly and indirectly across the country.
