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The Greensboro-based tobacco company acquired all the assets and operations of SKYCIG, a British-based e-cigarette business for approximately $49 million in cash paid at closing and additional contingent consideration of up to an additional $49 million to be paid in 2016 based on the achievement of certain financial performance benchmarks.
Lorillard was the first of the three Big Tobacco companies in the United States to enter the electronic cigarette arena with its April 2012 acquisition of blu eCigs. This latest acquisition gives Lorillard a major electronic cigarette brand in the United Kingdom and a global presence in the growing category worldwide.
SKYCIG, which formed in 2011, is expected to benefit from Lorillard's sales, marketing, regulatory, research and development expertise to further strengthen its competitive position in the U.K. e-cigarette market.
SKYCIG will operate as a separate operating subsidiary under Lorillard's ownership, and it is Lorillard's intention to retain SKYCIG's current management team and current business locations in Great Britain.
"It has been Lorillard's mission to be first and best in the electronic cigarette category, and with the acquisition of SKYCIG, our mission is now a global one," said Murray Kessler, Lorillard Inc.'s chairman, president and CEO. "We believe that with the addition of SKYCIG, Lorillard is uniquely positioned to lead the global e-cigarette industry to reach its full potential, and to do so in a responsible manner. We firmly believe that e-cigarettes may present the most significant harm reduction option ever made available to smokers in the U.S. and abroad, and we look forward to working with regulators around the world to confirm this conclusion."
According to Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, the U.K. e-cigarette market is approximately $325 million -- fairly small compared to the U.S. electronic cigarette market, which is expected to approach $2 billion by the end of the year.
"We have long believed Lorillard could expand its e-cigarette business internationally given [that] it was an early believer and entrant into the e-cigarette category with its April 2012 purchase of blu," Herzog said. "We view today's news as positive and believe the stock should react positively to this news as Lorillard can now leverage its e-cigarette expertise on a global platform."
On the regulatory front in the United Kingdom, electronic cigarettes are slated to be classified as medicines beginning in 2016. "We believe this acquisition gives Lorillard a seat at the table to help shape U.K. (and European Union) tobacco and e-cigarette regulation given its e-cigarette expertise," she added.