After acquiring Blu, the best-selling e-cigarette brand in the United States, in 2012, Lorillard has recently announced its acquisition of SKYCIG, a leading premium e-cig brand in the UK.
The Greensboro-based company was the first of the so-called Big Three tobacco giants to enter the electronic cigarette market by paying $135 million for Blu, in April of last year. As the popularity of electronic cigarettes grew, its two biggest rivals, R.J. Reynolds and Altria, realized this was a “Kodak moment” for the tobacco industry and soon followed suit by developing their own e-cigs, the VUSE and Nu Mark, respectively. For Lorillard, the acquisition route proved a winner, as it allowed it to control around 35% of the US electronic cigarette market through the Blu brand, so they’ve apparently decided to use the same strategy in their mission to dominate the category at a global level. The third largest tobacco cigarette maker in the US has begun its expansion in the world’s second largest e-cig market, the United Kingdom, by acquiring local premium brand, SKYCIG.
The maker of Newport menthol cigarettes will reportedly pay £30 million (roughly $50 million) in cash for the popular UK e-cigarette company, and an additional sum as high as another £30 million in 2016, depending on how SKYCIG performs financially. According to Stifel Nicolaus Equity Research, the UK currently has around 700,000 e-cigarette users, with 300,000 of them using SKYCIG products. “It has been Lorillard’s mission to be first and best in the electronic cigarette category,” Lorillard CEO, Murray Kessler, said in a press release. “Our mission is now a global one.”
Per the agreement, SKYCIG will become a separate operating subsidiary of Lorillard and the company will retain its current management team and business locations in the UK. “We are very excited about this development and what it means for both the SKYCIG brand and for our loyal customers,” Tom Rolfe, Co-Founder of SKYCIG, said. “We chose to move forward with Lorillard for the exceptional resources and expertise which the company can provide to enable SKYCIG to further both our product innovation and availability. This acquisition will allow us to continue to progress as both the best and the most widely available e-cigarette brand in the UK.” Like Blu, the UK e-cigarette company is set to benefit from Lorillard’s marketing, regulatory, research and development expertise, which will help it strengthen its foothold in the British e-cig market.
The deal puts Lorillard in a leading position on the two largest electronic cigarette markets in the world. Rivals R.J. Reynolds and Altria have just launched their e-cigarettes in test markets Colorado and Indiana and have some serious catching up to do. Wells Fargo analyst Bonnie Herzog believes the big head start will help Lorillard compete with the two larger cigarette makers as they fight for domination of the electronic cigarette market in the next 10 years. Although the market currently seems fragmented, with companies like V2 Cigs, NJOY, Green Smoke controlling considerable chunks of the US market, especially online, Herzog is convinced that tobacco companies will eventually control the segment thanks to their superior supply chain relationships with retailers and distributors.