Big Tobacco companies, which are attempting to hang onto American consumers even as smoking rates continue to decline in this country, are now looking to consolidate their efforts. A major deal announced this week will allow one cigarette maker to corner about a third of the U.S. market.
Reynolds American Inc. — the company that sells Camel and Pall Mall cigarettes — will pay about $27.4 billion to acquire its rival Lorillard, which manufactures Newport cigarettes. That will put some of the country’s most popular cigarette brands under one roof, and merge the second- and third-biggest tobacco companies in the United States. As the New York Times notes, the acquisition will essentially create “a $56 billion cigarette colossus.”
Now that the two tobacco giants have combined their business, they’ll also have greater geographic diversity. Reynolds’ sales have been strong in the Western portion of the country, while Lorillard has sold more in the Eastern half.
Over the past couple decades, after facing more scrutiny from public health advocates who eventually ended up passing tighter regulations on the tobacco industry, cigarette makers have attempted to reposition themselves through mergers and acquisitions. This particular deal will likely give Reynolds an edge in the e-cigarette industry, which is shaping up to represent the future of tobacco.
“This transaction in our view will be very positive for the global tobacco industry and could be just the beginning of future transactions with e-cigs/vapor being the underlying catalyst,” Wells Fargo analysts told the New York Times.
About 42 million Americans are regular smokers, defined as people who report they smoke every day or some days. But smoking rates in the U.S. remain stratified by class, education level, and age. According to the Centers for Disease Control and Prevention, about 30 percent of the adults living below the poverty line are smokers, compared to just 17 percent of those living above it. Cigarettes are most popular among adults between 25 and 44 years old. The Washington Post argues that tobacco companies are essentially relying on business from the young and the poor in order to stay profitable.
And according to a recent report from the Campaign for Tobacco-Free Kids, cigarette makers have already carefully marketed their products to appeal to those demographics. They’ve essentially made it easier to get hooked on cigarettes by increasing their levels of nicotine, as well as using new additives to help enhance nicotine’s impact. They’ve also tried to make smoking more pleasurable for young people by adding flavoring, sugars, and menthol to mask the effect of inhaling smoke. That means that today’s cigarettes are actually more dangerous than they were 50 years ago — and a smoker today now has more than twice the risk of lung cancer than a smoker five decades ago.
The head of the CDC believes that tobacco remains the greatest public health challenge of our time. Smoking is still the leading cause of preventable death in the U.S., accounting for about one of every five deaths every year.