With this move, Lorillard Inc., ranked third by revenues among US’s tobacco companies, will strengthen its presence in the e-cigarette niche. Lorillard Inc. will take over UK’s electronic cigarette manufacturer, Skycig in a deal valued at $100 million.
Based in Greensboro, N.C., Lorillard has made an aggressive foray into this niche buying blue Cigs, an American manufacturer of e-cigarettes, for $135 million last year.
The company confirmed that the deal involves a payment in cash of around £30 million which translates approximately to $50 million for the acquisition of the popular British brand Skycig. The company will additionally pay up to £30 million in the year 2016 which is contingent upon the results achieved by the Skycig.
Chief Executive of Lorillard, Murray Kessler stated that this move was in keeping with the company’s strategy establish its presence in the global e-cigarette market.
Electronic cigarettes use the power from a battery to convert nicotine-containing liquid into a vapour which is inhaled by the user. The revenues generated from e-cigarette sales are presently around 1% of the revenues of the global tobacco industry. However the e-cigarette niche has witnessed a high growth rate as an increasing number of smokers are making the switch to these electronic devices which are widely regarded as the safer and healthier alternative to tobacco cigarettes.
The deal comes in the wake of moves by the US regulators to impose restrictions on the sale of menthol cigarettes, following the 2009 blanket ban on cigarettes of all other flavours. Lorillard depends on menthol cigarette sales for 90% of its revenues.
Authorities are also planning to regulate the sale and distribution of e-cigarettes. The UK will regulate e-cigarettes as medicines with effect from 2016 while the US Food and Drug Administration hopes to get the draft regulations ready by this month.
A report by Wells Fargo estimates the revenues from e-cigarette sales (including online sales) could touch $325 million in the UK and $2 million in the US by this year end.
Stifel Nicolaus Equity Research states that out of UKs approximately 700,000 e-cigarette users, 300,000 use Skycigs.
Other US e-cigarette companies like NJOY Inc. are also planning to tap the UK and European markets.