Big Tobacco via British American Tobacco (BAT) announced a bid for a large percentage of Reynolds American. Many investors expected the deal to go ahead although British companies might need to puff up offers. BAT has most of its revenue earned overseas and would become the world’s largest tobacco company by sales and profits as a result.
America has become an attractive market for tobacco firms and buying Reynolds, whose brands include Camel and Newport, is the easiest way to grow BAT. Not long ago cigarette firms quarantined American businesses. Companies were split up to shield it from lawyers. Cigarette-makers remain subject to a settlement reached with American states in 1998, but fears of a huge class action have proven overblown. Damages have been paid in cases lost but were very small. Other countries are less hospitable, in Europe, for example where governments are demanding packaging devoid of company logos.
Tobacco firms are in competition to come up with safer products and buying Reynolds gives BAT more research and development and a larger portfolio of what industry likes to call reduced-risk items, including e-cigarettes. This is a tiny but growing part of the market. The race is on to come up with more satisfying options. British American Tobacco (BAT) announced a final deal to buy the rest of Reynolds American to create the world’s largest listed tobacco company by sales and profits. There has been a drop in people who smoke cigarettes but not big enough to truly make a dent in the huge profits companies make from people who buy cigarettes.
Regardless of whether rivals proceed with their own deals, tobacco makers are in the business to make money. Mergers are becoming more common as ways to take over larger segments of global markets where smoking is on the rise in other countries. The merger of BAT and Reynolds has clear logic when it comes to making more profits. New regulations have also not snuffed out tobacco firms. Companies are bullish on new products to heat tobacco without burning it. Smokers are looking to switch to what is considered a safer alternative (e-cigarettes) with claims it is much healthier than traditional cigarettes. Big Tobacco, in this essence, may be on the verge of an upcoming trend in people buying more e-cigarettes, thus providing a boon to their financial statements in the coming years. So-called reduced-risk products are on the rise in production on assembly lines within Big Tobacco and America is on tap to market heated tobacco products as safer than traditional cigarettes. It may add an additional $1bn in profits to their pockets by 2020. Cigarette sales could thereby go on the wayside where e-cigarettes take over in spite of the consequences of tobacco use in teens and adults.
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