Home    Trade Shows    Advertising    Subscribe    Archives    Search    Tobacco Products International

October, 2008

Altria to acquire US Smokeless Tobacco for $10.3 Bn

Richmond - Altria, owners of the Marlboro brand, have agreed to acquire UST, makers of Skoal, for $10.3 bn in cash. Under this agreement, UST shareholders will receive $69.50 for each share of stock held.

“The combination of Altria and UST creates the premier tobacco company in the United States with leading brands in cigarettes, smokeless tobacco, and machine-made large cigars,” said Michael E. Szymanczyk, Chairman and CEO of Altria. “UST provides Altria with the leading premium brands, Copenhagen and Skoal, in the highly profitable MST [moist smokeless tobacco] category. We will also acquire Ste. Michelle Wine Estates, a premium wine business, as part of the transaction.”

Once the transaction is completed, Murray S. Kessler, current Chairman and CEO of UST, will become the Vice Chair of Altria, and will be overseeing the integration while reporting directly to Szymanczyk.

“US Smokeless Tobacco Company is the leading and most profitable moist smokeless producer and marketer due to the efforts of Murray, his management team and employees,” said Szymanczyk. “They have a deep understanding of the growing smokeless tobacco category. It is my pleasure to welcome UST’s talented employees to the Altria family of companies.”

Chinese enterprises expected to merge
Beijing - Chinese tobacco manufacturers, Hongyun Group and Honghe Group, recently signed an agreement on merger and reorganization. These two companies are expected to merge to form the world’s fourth largest tobacco manufacturer.

The agreement must be reviewed and approved by China’s State Tobacco Monopoly Administration (STMA). But analysts are predicting that if the merger goes through, the new conglomerate will have an annual cigarette production capacity of 4.5 mn cases (225 bn cigarettes).

This will make it fourth in the world, only after Philip Morris, British American Tobacco, and Japan Tobacco Inc. Imperial Tobacco is expected to be knocked down to fifth.

Hongyun and Honghe, which both came to power through other mergers, are now expected to form what has been tentatively named Hongyun-Honghe Tobacco Group Co., Ltd. This enterprise will have eight other enterprises under it, including Kunming, Qujing, Honghe, Zhaotong, and Huize Cigarette Factories.

Hongyun-Honghe Tobacco Group Co., Ltd. will mainly produce brands of cigarettes such as Yunyan, Honghe, the Red Camellia, the Stone Forest, and the Little Panda.

United Kingdom
British American Tobacco responds to UK consultation on tobacco regulation
London - More must be done to prevent black market tobacco trade to avoid an increase in underage smoking, said BAT in response to a UK Department of Health consultation on future regulation.

BAT has outlined potential consequences of the actions the UK Department of Health mentioned in its paper, “Consultation on the Future of Tobacco Control.” The paper itself addresses issues including combating under age smoking and tackling illicit trade, proposes restricting or banning the display of tobacco products in shops, and discusses plain packaging for cigarettes and other tobacco products.

BAT’s Director, Corporate and Regulatory Affairs, Michael Prideaux, said, “Because of the health risks associated with tobacco products, getting the regulation right in this area is important… But great care is needed to avoid ineffectual laws with significant unintended consequences: fuelling the black market that makes cigarettes more accessible to children, ruining the livelihoods of small retailers, undermining a competitive market, and breaching companies’ intellectual property rights.”

BAT released a statement saying the following: “British American Tobacco does not believe a total ban is justified. There is no proper evidence to suggest bans or further restrictions would have any positive impact on smoking rates, including under age take up. In fact, there is evidence to the contrary. When Saskatchewan became the first Canadian province to ban retail displays, the percentage of adults who smoked increased from 21% in 2002, to 24% in 2003.”

BAT also says that the proposed display ban would cost retailers extensive amounts towards new displays and equipment, “Obstruct and distort free market competition amongst tobacco companies and the right to communication with adult consumers about legally-available products; Increase illicit trade by forcing all tobacco sales ‘under-the-counter’ - making it even harder for consumers to know what’s counterfeit and what’s genuine; Blur the distinction between legitimate and illicit product, making it harder to reinforce public appreciation that smuggling, counterfeit, and piracy are crimes.”

BAT cites the estimate “13% of cigarettes and 56% of hand-rolling tobacco sales are illicit [coming from the black market].” The estimate itself comes from HM Revenue & Customs, said BAT.

Though working against black market trade is on the BAT agenda, BAT “calls on the Government to address the high tax differences between the UK and other EU countries that contribute to demand for cheap smuggled and counterfeit tobacco products, and calls for more ‘joined up Government’ to drive a national strategy.

“It also calls on the Government to push for stronger international compliance, against illegal counterfeiting in other countries and exports of products illegally smuggled into the UK.”

With respect to the prospect of plain packaging, BAT believes that it “moves to prevent tobacco companies from using the trade marks, copyright, and designs that are valuable corporate assets would place the Government in breach of legal obligations relating to intellectual property, international trade and European law… If smuggling, counterfeit, and piracy are to be effectively combated, the intellectual property rights for legitimate brands must be properly protected and enforced.”

Finally, in response to the Government paper’s talk of “denormalizing,” BAT said that “denormalization” is “not a legitimate State policy objective for a legal and taxed consumer product and is an improper basis for regulation.”

United States
National moves manufacturing to Owensboro
Louisville - A sorrowful executive announced that National Tobacco Company (NTC) will cease all tobacco product manufacturing and distribution at its Louisville facility by the end of 2009. These products will instead be produced at the Swedish Match NA factory in Owensboro, KY on a contractual basis.

NTC will retain all marketing, distribution, and trademark rights over its brands.

Ron Tully, NTC Vice President of Public Affairs, said, “NTC has come to this decision because the Louisville facility, built in the early 1900s, operates well below capacity, is energy inefficient and consists of a series of unconnected, multi-story buildings with limited weight-bearing floors.”

These floors cannot satisfactorily support modern manufacturing techniques, he said.

“Declines in overall tobacco industry volumes and increasing regulatory burdens on the industry also contributed to the decision to cease production and distribution at this facility,” he said.

NTC’s loose-leaf brands have been the primary function of the Louisville facility. The fate of NTC’s roll-your-own manufacturing, and of Louisville product distribution, were yet to be decided. The Louisville facility will continue to house NTC’s administrative headquarters.

The company regrets the impact this decision had on its employees and the Louisville economy, Tully said. “This decision is not the fault of any of our employees, many of whom have over 30 years of service, or are second or third generation employees,” he said. “Unfortunately, the company cannot foresee any future developments, alternatives, or improvements that could change this decision.”

NTC is a subsidiary of North Atlantic Trading Company Inc.

Tobacco International - October, 2008

Tobacco International is published by Lockwood Publications, Inc., 26 Broadway, Floor 9M, New York, NY 10004 U.S.A., Tel: (212) 391-2060. Fax: (1)(212) 827-0945. Printed in the U.S.A.. HTML production and Copyright © 2000 - 2008 by Keys Technologies and Tobacco International Magazine. All rights reserved.