UBS Speculates on Lorillard

Swiss banking giant UBS (well, until recently a giant!) looked at the tobacco industry and believes Lorillard is a possible merger or acquisition target. They came up with three possibilites……………

Their first – and favorite – involved Reynolds American and Lorillard. This is old news and speculation – all of it unsubstantiated – has been rife for months (some would say years.) They’re wrong and here’s why………… Reynolds has enough issues right now trying to stop market share bleeding and right-sizing its business to be distracted with a major acquisition. While the acquisition of Lorillard looks initially attractive for RAI it ignores the dilemma of what to do with Salem and Kool. And would the FTC approve? This is likely but not a given, as RAI would own the top three US menthol brands?

Second option was Imperial (Tobacco UK) acquiring Lorillard. An intriguing possibility but does Imperial have the money to pull off such a deal right now? Swallowing Altadis and Commonwealth must have used (most of) their acquisition war chest. 

Their third option, and in UBS’ view least likely, is Lorillard acquiring Swedish Match. What about the other way round or much more likely a true merger of equals? Swedish match gains a big market hold in the US with Newport. Lorillard gains acess to international markets, snus / smokeless technology and a big cigar business. 

What do you think?? Which option makes sense?


#1 Mr. UNZ on 03.13.09 at 9:21 AM

None of the scenarios seem likely: Reynolds and Imperial for the reasons you state and while Swedish Match would make sense on paper, their recently announced joint venture with PMI shows they are moving in a different direction.

Lorillard seems married to the cigarettes; marketing it the same way they did 20 years ago. To date, they have completely botched what should have been a winning snus introduction; still languishing in two test markets and exposed as secretly lowering their snus nicotine levels.

Lorillard will eventually be taken over by some one as the American cigarette ban draws closer, but by then, their share value will be so low that they will be absorbed by the purchaser, not an equal partner.

#2 Anonymous on 03.14.09 at 12:30 PM


I believe you are incorrect in the assumption RAI would have the top 3 menthol brands if RAI purchased Lorillard. The number two menthol is called Marlboro Menthol. RAI would be better of ditching or selling the Salem brand off. I belief their menthol growth is in the Camel brand!

#3 OTP Kid on 03.16.09 at 5:35 PM

What company in their right mind would buy a company that was basically 100% vested in menthol with FDA and Waxman looming. UBS just cut salaries in half for key employees, I would think they ought to worry about other things.

#4 Walter Raleigh on 04.20.09 at 12:27 AM

In spite of the comments made by previous bloggers I would tell you they are one sharp company! Not sure if Mr Unz really has a clue as the Snus product is actually performing much better than he may suggest. And I bet you they have another strong performance in the first quarter! They just have the brand.

#5 Mr. UNZ on 04.20.09 at 9:25 AM

I hope Walter Raleigh will enlighten us as to his sources in proclaiming Triumph Snus’s performance. Unless he works for Lorillard and has inside information, no credible information seems available on Triumph Snus at all.

Lorillard point-blank refuses to answer any questions concerning Triumph. Triumph has no dedicated page, let alone section on the aging

There is no Triumph Snus website. Lorillard’s last press release on Triumph was to announce its introduction. Nothing since.

The only mention of snus by Lorillard is in a presentation stored on their site which labels snus as a “long term project” which is still under investigation and generally not under serious consideration at this time.

Lorillard doesn’t have “the brand”. According to the before mentioned presentation, Lorillard has one brand: Newport menthol cigarettes. The whole company rises or falls on Newport.

When Kennedy/Waxman becomes law this year and FDA takes over control of all tobacco products, what is Lorillard going to do if, as widely expected, FDA bans menthol? Goodbye Newport; goodbye Lorillard.

Triumph Snus? It’s not even a blip on the radar. Swedish Match AB, which manufacturers Triumph for Lorillard, has publicly stated on that their General Snus brand (the most popular snus in the world) will be as “common as Marlboro cigarettes in the United States”. Not 10 years from now…this year.

And Swedish Match, which also manufacturers and markets a number of American Chewing tobaccos, has the convenience/grocery/gas station/tobacco store distribution network already in place to accomplish that.

Enjoy your stock dividends while you can. I’m sure the Lorillard Executives will enjoy their new very nice Bonus and Compensation Plan (for which the majority of the May Annual Meeting is dedicated to).

Lorillard is living on past glory. The shareholders, and you apparently, are lemmings following them over the cliff. Let’s chat again around Christmas 2010. Odds are, Lorillard won’t even exist by then.



#6 Walter Raleigh on 05.31.09 at 12:32 PM

My bet still would be that RJR is not talking to Lorillard! I think to many folks are speculating as to what they’d like to see rather than what is practical at this time!

#7 Larry Waters on 05.31.09 at 1:05 PM

I agree. The longer RJR waits, the cheaper the price for Lorillard will be.

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