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Catherine Colbert

Lorillard buys blu for $135 million

by Catherine Colbert | Dun & Bradstreet Editor

April 25, 2012 | 11 Comments »

The nation’s oldest continuously operating tobacco business has officially moved into the smokeless, electronic variety. Based in Greensboro, North Carolina, top cigarette maker Lorillard announced today that it has acquired blu ecigs, an electronic cigarette company located in nearby Charlotte.

Shelling out some $135 million in cash to add blu’s assets to its stash, $6.5 billion Lorillard is working to capture this fast-growing and tech-savvy niche of the smokeless tobacco market. Sans the smoke, ash, or smell of a real burning cigarette, leading brand blu ecigs helps smokers looking to kick the habit maintain the social aspects of lighting up. As part of the agreement, blu ecigs will operate as a unit of Lorillard with existing management intact.

Lorillard primarily supplies premium and discount cigarettes — under the Kent, Old Gold, True, and Maverick names — to wholesale distributors that service more than 400,000 retail outlets, chain stores, and government agencies such as the US Armed Forces. These established relationships stand to give the company’s new blu brand some timely traction as competition heats up in e-cigarettes; blu will also benefit from having a big brother that can navigate the industry’s regulatory issues. For more on the nuances of this high-tech tobacco product, refer to a previous Bizmology post from colleague and First Research analyst Rebecca Mallett.

Lorillard has long relied on Newport, its best-selling flagship menthol cigarette brand that generates 85% of revenue. The cigarette manufacturer, founded in 1760 by French immigrant Pierre Lorillard, ranks #3 behind Philip Morris USA and Reynolds American.

To keep up with these tobacco titans and cater to consumers looking for newer smokeless tobacco products, Lorillard did well by strategically acquiring blu and expanding its products portfolio. As more restaurants, companies, and communities continue to bow to pressure from anti-smoking advocates, tobacco companies like Lorillard will need to look for more innovative ways to not only serve active cigarette smokers, but those who require smokeless products or who are opting to kick the habit altogether.

Wow, i didn’t even know there was such a thing as an electronic cigarette. Makes sense though that it is a growing industry considering all of the smoking bans. Austin just passed a ban on smoking OUTSIDE in its parks.

    Catherine Colbert

    Watch the video on blu’s website. I linked to it from the blog post. Where we live, e-cigarette users should watch their backs until people realize that they’re blowing vapor, not smoke.

Lorillaerd bought the competition. Now that they own it, You won’t hear any more about the product because it replaces cigarettes.

Catherine Colbert

They bought blu e-cigs to squash it? We’ll have to wait and see, Betty. The concept is odd to me (similar to a candy cigarette) but I can understand how using the product could help someone who eventually wants to quit, and, yes, that is counterproductive to Lorrilard’s business plan. It could be moving into a new direction, however, as Barnes & Noble did when it began trading old-fashioned books for Nook e-readers. That move proved to be an incredibly smart one.

A few things of note:

– with the exception of dip tobacco, cigars, or pipes (nothing new), none of the other cig replacement products have taken hold.

– if the FDA terms the main e-cig ingredient (PG) to be a mild carcinogen, that could open a huge can of worms for all sorts of food additives. Unless they can prove that PG changes form when atomized (possible), I doubt they want to go there.

– the US gov’t certainly wants their share of tax revenue from any growing industry, and this will be no exception.

– Lorrilard can either grow the business or try to kill it off, and it’s safe to say Altria and Reynolds are watching closely. There are enough small e-cig vendors, so Lorrilard would need find that e-cigs are a toxic product, similar to their established products. That shouldn’t be hard to do, but the company may be forced to compete if Altria or Reynolds shows interest one way or the other.

– I no longer hang out on college campuses, etc., but I’ve seen very few people vaping in public. The e-cig products might gain broader acceptance with a recognizable name brand.

– An argument that will surely come against e-cigs: if they are relatively safe, acceptable, and widely available, how many of their users will try and eventually use traditional tobacco cigs? My guess is that’s where the money’s at for Lorrilard, and sorry for sounding like “Captain Obvious.” Their greatest asset in any case is the addictive nature of nicotine in any form.

Catherine Colbert

Interesting points, Mikey. I, too, am intrigued to see how Lorillard treats this new acquisition and how regulators and rivals treat electronic cigarettes. I have to admit I haven’t seen them used yet. Your final thought on tobacco giants using e-cigs to lure nonsmokers into smoking through the ease of e-cigs’ side door is kind of depressing.

E-cigs have allowed me to stop coughing, hacking etc. I can take deep breaths again for the first time in more than 6 years. I smoked for 30 years and in January I tried my first e-cig and never looked back. In just six months the difference in the way I feel is beyond belief. Of course, E-cig makers are not allowed to make any health claims but the facts are obvious: e-cigs produce no tar, no carbon monoxide, no second hand smoke, taste better, cost less money, can be smoked without bothering or harming others in the room and can be purchased in a variety of flavors with and without nicotine. And they feel exactly like smoking the “real” cigs. They have changed my life. And no, I don’t work for an e-cig company. I’m simply the most thankful man in the world. Thankful I can breath again. Take a look on YouTube and see the THOUSANDS of users of e-cigs and look at some of the lung x-rays that have already been posted there. I hope the FDA dosen’t screw up the only thing that ever allowed me to quit (after trying all the useless patches, gum, pills etc.). I thank God every day for e-cigs.

It’s encouraging to hear a testimony like Greg’s, and in more than one way. If the idea and result of e-cigs is that they are a means of exiting the smoking world, then yes, Lorillard and competitors would probably look for ways of undermining it in favor of their addictive products. But if it’s more common that people are like Greg, finding that e-cigs taste “exactly like” the addictive products, then maybe the business can just shift that direction for the benefit of all.

I’d be much more optimistic about an honest attempt being made to see if that switch is possible if it was coming from dedicated e-cig companies rather than seeing them get snapped up by tobacco titans. Tobacco companies may be taking increasing heat from medical studies and federal regulations, but while they are pursuing these alternatives there doesn’t seem to be a critical mass of pressure to force them into really putting their heart into it, so to speak. I think that will come, eventually, but it seems to be in the unforeseeable future.

Catherine Colbert

Thank you Greg and Chris for reigniting discussion of e-cigs. Greg gave good reasons why the product is an option for smokers. And, yes, Chris, perhaps big tobacco is bringing more e-cig companies onboard as positive PR. Whether they make tobacco products or faux smoking implements like e-cigs, big tobacco is happy to build its business with smoking AND recently-smoking consumers.

Was just reading these comments a year after the purchase and had to laugh at the conspiracy theorists! LOL

We are still here and going strong with Lorillard’s help!

Jason Healy
President blu eCigs

No matter what sellout Jason Healy says I don’t trust Blu and I never will again now that big tobacco has their hooks in them. I tried a $10 Blu ecig from the gas station, liked vaporizing more than smoking and since then I’ve moved onto building my own ecig instead of relying on a company that’s in bed with Lorrilard.

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