At the beginning of the week it was reported that British American Tobacco, Britain’s largest tobacco maker of Lucky Strike cigarettes, asked Deutsche Bank to collaborate with UBS on possible financial deals in the USA.
British American Tobacco engaged the banker to advise the company on possible purchases and deals. They are interested in Reynolds and Lorillard.
Experts say that Lorillard is a higher quality company than Reynolds. British American Tobacco owns almost 42% of Reynolds and this year the company refused to deal with Reynolds because they both did not have enough collaboration.
Societe Generale says that the idea of merging of Lorillard and Reynolds American in order to create a strong partnership put British American Tobacco’s Company on thinking.
In the USA, Lorillard has 15% of market share. Though it is smaller than Reynolds, its Newport brand manages to achieve success on the American tobacco market. Societe Generale told that British American Tobacco wants to introduce this brand in countries outside the USA.
Experts say that it would be better for British American Tobacco to look for collaborations on the emerging markets such as Malaysia or Brazil.
Due to the success of Newport, British American Tobacco considers that collaboration with Lorillard is more challenging for their business.
In 2013 arond 75% of Lorillard’s sales were made up of menthol version of Newport, with over 85% of profits. If British American Tobacco were to merge with Lorillard, they would own approximately 70% of share in menthol.
It should be noted that Bank of America increased the price objective on Lorillard and Reynolds American from $57.00 to $60.00.