it of the vapers: Strong sterling is the immediate challenge for British American Tobacco, whose interim operating profits slipped 12% to £2.46 billion. The long-term battle remains reputational, as regulation of cancer sticks intensifies. Demonstrating admirable chutzpah, Bats is seeking a product endorsement from a Department of Health agency. This prompts thoughts of old adverts urging Edwardians to smoke Dr Crippen’s Patent Asthma Mix For Healthier Lungs. But the multinational, helmed with sardonic brio by Nicandro Durante, wants a fillip for electronic cigs rather than the combustible sort. Confirmation that vaping is safer than smoking could encourage doctors to prescribe the devices, giving a small but useful fillip to sales. Big tobacco is probably more than a little afraid of the devices. The business that can patent an ecigarette as satisfying as a regular fag will have a category killer that could also hollow out mature cigarette markets. The old game of combating sales declines with marketing would be over for tobacco giants. For the moment it continues with BAT resisting U.K. government plans for plain packaging. A KPMG study found sales of smuggled packs that were branded but untaxed rose from 11.8 to 13.9% of the market in Australia after a similar reform. We may surmise a similar increase in the U.K. would reduce the tax take by £210 million yearly. However, tobacco-funded research has a poor record.
Currency headwinds blew earnings per share 12% lower at British American Tobacco in the first half of the year, although underlying profits improved if exchange rates were held steady. Group revenue was up 3% at constant rates of exchange to £7.78bn, but down by 10% to £6.80bn at the reported level due to the adverse exchange rate movements.
15 Jul '14
* Offers $68.88 per share, premium of 2.5 pct * To sell Salem, Winston, KOOL and blu brands to Imperial Tobacco * BAT to buy shares in Reynolds to keep 42 pct stake * Lorillard, Reynolds shares down (Recasts to add CEO comments to add CEO comments, additional background on menthol cigarette regulatory issues) By Anjali Athavaley July 15 (Reuters) - Reynolds American Inc's proposed $25 billion acquisition of smaller rival Lorillard Inc shows how the tobacco company is placing its bets on the market for menthols even as a growing number of smokers opt for e-cigarettes. With the deal, Reynolds American picks up Newport menthol cigarettes, one of the few U.S. brands that is gaining share in a shrinking market. At the same time, Reynolds is giving up blu - the top-seller in the e-cigarette market seen by many as the tobacco industry's future - to Britain's Imperial Tobacco Group. As part of the deal, Imperial will buy Reynolds' Salem, Winston and KOOL and Lorillard's Maverick brands in a move meant to ease potential antitrust concerns. Experts say that still may not satisfy regulators. Sources familiar with the transaction said gaining the blu brand made the deal more attractive to Imperial. While cigarette sales volume has been falling about 4 percent a year, e-cigarette sales have been booming. Reynolds sells its own e-cigarettes under the Vuse brand but controls less than 5 percent of the market, according to market research firm Euromonitor International. Reynolds' purchase of Lorillard's Newport brand gives the company a stronger presence in the market for menthol cigarettes. Menthols now make up 31.4 percent of the total market compared with 26 percent in 2002, according to Morningstar. "The e-cigarette category is very small today," said Susan Cameron, chief executive of Reynolds. "It's growing and consumers are interested in it, but this transaction is really about adding Newport to our portfolio." Menthol is a mint-flavored additive that may reduce the irritation and harshness of smoking when used in cigarettes, according to the U.S. Food and Drug Administration. Experts say menthols have disproportionate popularity among young people, lower-income smokers and African-Americans. The FDA last year released a preliminary review that said that a majority of African-American smokers use menthol cigarettes. Menthols were also associated with lower socioeconomic status, according to the FDA review of available studies. But the deal shows that Reynolds isn't banking on significant regulation of menthols by the FDA, which regulates the substance in medical products but not in cigarettes. The agency is conducting its own studies on the topic and has said it would consider restricting the use of menthols. In an interview, Lorillard's chief executive officer, Murray Kessler, said both companies are confident there is no justification for regulating menthol cigarettes differently than nonmenth
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