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In a deal marrying electronic cigarettes with big tobacco, Lorillard Inc. through its Lorillard Tobacco Co. subsidiary, has acquired blu ecigs for $135 million cash.
“blu ecigs are the perfect adjacency for us to participate in the smokeless market, but in a Lorillard way. That is, e-cigarettes offer many of the benefits of other smokeless products but do so in a way that is familiar and enjoyed by current adult cigarette consumers,” explained Murray Kessler, CEO of Greensboro, N.C.-based Lorillard. “We believe that blu will benefit from Lorillard Tobacco Co.’s regulatory experience and sales infrastructure, which are needed for it, and the category, to reach its potential in a responsible manner.”
Lorillard revealed the acquisition this morning when it released its first-quarter 2012 results. According to the company, Charlotte, N.C.-based blu will be a separate operating company and Lorillard’s intention is to retain blu’s current management team and headquarters.
“This is a very exciting time for us and an extremely positive step forward for the electronic cigarette industry, which by nature and age has been lacking a lot of the resources necessary to truly take this product to the next level,” said Jason Healy, president and co-founder of blu ecigs, told Progressive Grocer sister publication CSNews Online.
“I can’t overstate what this will mean for consumers, as blu ecigs now has the resources to not only significantly expand its distribution, but also to put much needed resources into expanding our quality and R&D initiatives to ensure that blu consumers continue to have the best product on the market. I have always said that electronic cigarettes have a tremendous responsibility, and this step will allow us to ensure that we continue to live up to and exceed that responsibility,” he added.
Some in the industry may view the transaction as case of “if you can’t beat them, join them.” At the Convenience Store News 2012 Tobacco Roundtable, John Call of CF Capital Assets said that now would be a good time convenience store retailers to make a profit from e-cigarettes before major tobacco companies joined the game. Now Lorillard becomes the first of the big three to suit up.
Lorillard’s acquisition of blu comes as the tobacco company reports net sales that decreased $9 million to $1.526 billion in the first quarter of 2012, compared with $1.535 billion in the first quarter of 2011, a 0.6 percent decline. The decrease resulted primarily from lower unit sales volume which was negatively affected by trade inventory pattern fluctuations, partially offset by higher average prices.