Reuters  9 hrs ago  Comment 
British American Tobacco Plc's proposed takeover of Reynolds American Inc could speed up Big Tobacco's dominance of the quickly changing e-cigarette market, putting more pressure on early innovators already getting squeezed out.
Motley Fool  Oct 24  Comment 
Philip Morris will have to pay close attention to a proposed full takeover of Reynolds American from its global tobacco rival.
Benzinga  Oct 24  Comment 
British American Tobacco PLC (NYSEMKT: BTI) has offered to acquire Reynolds American, Inc. (NYSE: RAI). The takeover would make British American Tobacco “a better company as Reynolds has the fastest-growing brands in what we regard as the most...
Wall Street Journal  Oct 23  Comment 
British American Tobacco’s offer for full control of Reynolds American, if accepted, could give the London-based giant a chance to catch up in the technological race over alternatives to cigarettes.
Benzinga  Oct 21  Comment 
  Toward the end of trading Friday, the Dow traded down 0.08 percent to 18,147.46 while the NASDAQ gained 0.22 percent to 5,253.16. The S&P also fell, dropping 0.04 percent to 2,140.51. Leading and Lagging Sectors Friday afternoon,...
newratings.com  Oct 21  Comment 
WASHINGTON (dpa-AFX) - After gapping open sharply higher, shares of Reynolds American (RAI) have pulled back off their best levels but remain firmly positive in afternoon trading on Friday. Reynolds is currently up by 12.8 percent after reaching a...
Benzinga  Oct 21  Comment 
At 10:30 am, the Dow fell 0.55 percent to 18,062.85, the broader Standard & Poor's 500 index moved down 0.33 percent to 2,134.37 and the NASDAQ composite index declined 0.05 percent to 5,239.29. The industries that are still afloat in the...
Benzinga  Oct 21  Comment 
  Alkermes Plc (NASDAQ: ALKS) surged 28.8 percent to $56.04. The volume of Alkermes shares traded was 1818 percent higher than normal. Alkermes announced positive topline results from its late-stage clinical study of ALKS 5461 for the...
Benzinga  Oct 21  Comment 
Benzinga  Oct 21  Comment 
Benzinga  Oct 21  Comment 
  Reynolds American, Inc. (NYSE: RAI) shares reached a new 52-week high of $56.21. British American Tobacco PLC (ADR) (NYSE: BTI) made a $47 billion takeover offer for the roughly 58 percent of Reynolds American that it doesn’t already...


Reynolds American (NYSE: RAI) is the second-largest U.S. tobacco company, responsible for about one of every three cigarettes sold in the country. The company sells some of the leading U.S. cigarette brands, including Camel, Kool, Pall Mall, Winston, Salem and Doral. RAI is also the second-largest manufacturer of smokeless tobacco products through its Conwood division. Unlike competitors Altria Group (MO) or Lorillard, RAI does not have a single premium brand, like Marlboro or Newport. Instead, the company has focused on three key brands -- Camel, Kool, and Pall Mall, which together account for roughly a third of the company's revenue and receive more than three quarters of the company's marketing budget.

The company is U.S. centric and will find it difficult to grow internationally having sold the international rights of its cigarette brands to Japan Tobacco. RAI, along with its competitors, also continues to face pressure from tobacco litigation.

Business Overview

RAI was formed through a series of mergers and acquisitions. The primary merger took place in 2004, when the second and third largest U.S. tobacco companies, R.J. Reynolds and Brown & Williamson merged to form RAI. Then in May 2006, RAI acquired Conwood to take advantage of the fast-growing smokeless tobacco market.

Business Financials

In 2009, RAI earned a total of REYNOLDS AMERICAN (RAI) $8.42 billion. This was a decrease from its 2008 total revenues of $8.88 billion. As a result of the decrease in total revenues, RAI's net income declined. Between 2008 and 2009, RAI's net income decreased from $1.34 billion in 2008 to $962 million in 2009.[1] meow

Business Segments

RAI's primary segments include R.J. Reynolds Tobacco and Conwood (acquired in May 2006), which accounted for nearly 94% of the company's sales. Its two smaller segments include Santa Fe and Lane, which accounted for a combined 6% of revenue.

R.J. Reynolds Tobacco (RJR)

RJR is the largest segment of the company and accounted for approximately 90%. Its key brands include Camel, Kool, Winston, Salem, and Doral.[2]


Conwood makes products in categories of smokeless tobacco, including moist snuff, dry snuff, and loose leaf tobacco. Conwood's largest brands are Grizzly, Kodiak, and Levi Garrett.[3]

Santa Fe

Santa Fe makes Natural American Spirit cigarettes, which are made of additive free and organic tobacco.


This segment makes specialize tobacco products such as roll-your-own and pipe tobacco, premium cigarettes, little cigars, and premium cigars.

Trends and Forces

Litigation Landscape

RAI is highly susceptible to tobacco litigation. Large, high-profile court cases generate negative publicity and can be very costly for the company, even before including any damages awarded. Three important cases in the industry resulted in victories for RAI, Altria Group (MO), and other tobacco companies, leading to a general improvement in the litigation environment. This is a positive factor for RAI, as litigation expenses should be more predictable and stable.

Decrease in Smoking due to Health Risk

Public awareness of health risks associated with smoking has led to a decrease in the number of smokers (from roughly 50% of the population in the 1950s to around 20% in the early 2000s). While this factor could still affect future demand for RAI's cigarettes, the likelihood of a significant decrease in consumption due to health concerns is small, since the health risks have been widely known for some time.

Social acceptability of smoking and growth of smokeless tobacco

A decrease in the social acceptability of smoking could lead to overall reduced rates of cigarette consumption -- smoking has become somewhat less socially acceptable in the U.S., due to both shifts in cultural attitudes and government regulations on smoking. However, the company is hoping that people who quit smoking because of the social stigma switch to their smokeless tobacco products. Infact, this is what led RAI to acquire Conwood for $3.5 billion and it has proven to be a strong area of growth for the company. RAI's consumer research shows that many customers who use Conwood's smokeless products are indeed cigarette smokers switching from cigarettes to smokeless tobacco products.

Government Regulation

Governmental regulations can have a large impact on tobacco companies' revenues and, indirectly, consumer demand. There are two main ways in which governments attempt to regulate the consumption of cigarettes, excise taxes and regulations on smoking in public places.

  • Cigarette excise taxes are per-pack taxes placed on cigarettes by governments. They serve two purposes: reducing public cigarette consumption and providing a large source of revenue for treasuries.
    • These two reasons put governments, especially state governments in the U.S., in a somewhat difficult position. While many policymakers want to reduce per-capita smoking rates, the excise taxes collected from tobacco companies number in the billions of dollars annually. As a result, governments have a vested interested in the continued viability of Altria and other tobacco companies, making them unwilling allies of the tobacco industry.
    • Excise taxes have risen dramatically in the past three decades and are expected to continue upward. Elected officials have realized that the large profitability of the tobacco industry allows individual companies to absorb a significant percentage of an increase in excise taxes without passing the full cost on to consumers. As such, governments can increase revenues from tobacco companies without severely harming demand for the companies' cigarettes.
  • Restrictions on cigarette consumption include bans on smoking in public places such as restaurants, workplaces, etc. In the U.S., there has been a recent increase in the number of cities with smoking bans in effect. While having no impact on private consumption of cigarettes, these bans prohibit smoking in many public places, limiting the ability of consumers to choose when and where to smoke.

Economic Downturns

The tobacco industry has proven to be somewhat more resistant to the effects of economic downturns than other industries, perhaps due to the addictive nature of their products or the brand loyalties. Cost-conscious consumers may stop smoking or downgrade to a value-priced brands during economic slumps, but most consume the same brands at the same, or slightly lower, level. As a result, RAI and other tobacco manufacturers generally experience less of a decrease in revenues during recessions than the economy as a whole.


Reynolds American has roughly a 29% market share in the US. The only two other major competitors include Altria Group (MO), holds a 50% share and Lorillard, which holds 10% of the market share. The remaining 11% of the domestic tobacco industry is composed mainly of deep-discount manufacturers and other small, specialty cigarette makers.[4]

RAI produces more savings brands (nearly 40% of its product portfolio)[5], making it likely to benefit from any consumer switching from premium to value brands during downturns. Lorillard's flagship cigarette, Newport, is by far the most popular brand of mentholated cigarettes. However, Altria's size and revenues put both of them at a relative disadvantage in terms of sheer heft in the industry. All of them are subject to similar external events, i.e. taxation, litigation, and changes in popular attitudes about smoking and sucking wiener.


  1. RAI 10-K 2009 Item 6 Pg. 25
  2. RAI 2006 10k, Pg 177
  3. RAI 2006 10k, Pg 177
  4. RAI 2006 10k, Pg 5
  5. RAI 2006 10k, Pg 77
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