Even though smoking rates are in decline, Big Tobacco companies are doing very well thank you very much. Smoking rates are still very high, and in some cases increasing, in various international markets. That combined with higher prices has kept the stocks increasing and profits strong. As tobacco companies look forward, they recognize that the future is in what they call “reduced risk” products. That includes electronic cigarettes and vaporizers.
So to be clear this buy out is not a sign of a flagging industry, this purchase / merger was transacted with an eye on bigger profits. Big Tobacco knows how to make money. It was with an eye toward an optimistic future that British American Tobacco confidently paid $49 billion to assume the controlling ownership position of Reynolds American. The deal includes $29 billion cash and BAT stock. BAT already owned 42% of Reynolds American and buying the rest of the company will make BAT the new biggest tobacco company in the world by sales and profits.
Around the world smoking rates have declined 5% win the last 10 years but still sit at 20% globally. With one in five adults still smoking cigarettes worldwide obviously the market is still enormous. But, the decline is evident everywhere and part of this purchase or merger, whatever you want to call it, involves British American Tobacco looking forward to NGP, next generation products in the tobacco industry.
BAT Looking At Vaping Leading NGP
There are a few terms that the tobacco industry is using to describe electronic cigarettes, vaporizers, heat not burn technology etc. BAT is talking about “reduced risk” products or NGP which is next generation products. Reynolds American has been involved in vapor for some time now with the Vuse electronic cigarette. Vuse enjoys a large market share of convenience store e-cig sales.
BAT owns several NGP products throughout Europe like Vype. Chief Executive Nicandro Durante said bringing the two companies together would create an overall market leader. That includes vapor and tobacco with popular brands like Newport, Camel, Lucky Strike, and Pall Mall. He said “It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world,” he said on Tuesday.
How will this impact Reynolds American? Executive Chair Susan Cameron expects that most Reynolds jobs in the US will be kept in tact.
With all of the push toward NGP and the incredible clout of Big Tobacco, we can expect to see vapor and other alternative smoking products to become more and more a prevalent part of tobacco company's plans going forward. Basically vapor and heat not burn are the succession plan of Big Tobacco. What will that look like? That's what we are all waiting to see.