Everyone was surprised last week when the merger package joining R J Reynolds and Lorillard included the sale of Blu E-cigs to Imperial. It had been pretty much universally assumed that Blu was Lorillard's “jewel in the crown” and a major motivation for the Reynolds drive to acquire their North Carolina neighbor. So what could have changed their thinking on that issue? What could prompt the cigarette company to jettison the best selling cigarette antidote, which was poised to counteract the drop in their profits?
Some speculative answers have begun to emerge. There are those who think it has to do with a desire to make the Federal Trade Commission (FTC) think that they are fostering competition. The FTC has to rule on the acceptability of the merger, after all. The FTC is at pains to prevent monopolistic practices, and companies are at pains to demonstrate to the FTC that they do not engage in monopolistic practices, especially those companies that do engage in them most energetically. The loss of a subsidiary that has a better-than 40% share in the fastest growing industry segment seems like a high price to pay, but then $7 billion is a fairly large chunk of cash, a high price to receive, so to speak.
Then there is Vuse. Reynolds has devised its own e-cigarette and brought it out in Colorado last summer, where it seemed to do well. They are rolling it out nationally this summer, and they seem confident, and willing to allow it to be their entrée in the e-cigarette category. They say it utilizes better technology, and can deliver more consistent puff quality. Whether or not it really does, they clearly have the ability to convince a large market segment that it does – after all, well-funded cigarette advertising has displayed remarkable, and deadly, persuasive ability. For decades they convinced millions that smoking was not harmful, even with people dropping like flies all around. You can fool all of the people some of the time.
The merger was accompanied by industry talk about declining e-cigarette sales. It is hard to resist the supposition that this is talk designed to downplay the strategic importance of e-cigarettes to the market. Of course it ignores the fact that the e-cigarette decline is in the face of the continued rise of tank vaporizers, the other vaping system. Most experienced vapers say the better vaping system. It is e-cigs that are down, not vaping systems, and talk from industry honchos about downward e-cig slides seem calculated to mislead. You can fool some of the people all of the time.
Then there is the fact that Imperial has a lawsuit pending against Lorillard/Blu and other e-cig companies (the others all independents, all non-Big-Tobacco). Owning Blu itself, Imperial will no doubt remove it from the list of defendants, which will save a bit of cash, but will also turn the suit into an action by Big Tobacco against independent e-cig manufacturers. As a result, Big Tobacco may feel it is doing more damage to the independents, as a group, than they were when Blu was included.
In other Reynolds news, the company announced this week that it is funding a study on long-term health effects of vaping. The study is to be conducted at an Atlanta testing facility operated by the National Institutes of Health, and is part of the massive array of studies called for by the FDA (to the tune of $275 million from the FDA's own coffers) to assess regulatory needs for vaping supplies. Of course stepping in with additional largesse from their own bountiful coffers, Reynolds is making a calculated public relations move. The Reynolds-funded study is designed to make Big Tobacco look as though it has a heartfelt interest in the health of consumers.
But you can't fool all of the people all of the time.* Experienced vapers will continue with their personal tank systems and mods, and the machinations of Big Tobacco and the cancer-stick imitations they sell won't really matter all that much in the long run.
*(Quotation attributed to Abraham Lincoln: “You can fool some of the people all of the time; you can fool all of the people some of the time; but you can't fool all of the people all of the time.)
Share this Post