Why Investors Hate the Reynolds-Lorillard Merger, In 8 Simple Slides
Why Investors Hate the
Reynolds-Lorillard Merger, In 8
What’s Behind Today’s Plunge?
• Yet merger talk
had circulated for
months, so what
Both Reynolds and
Lorillard shares fell
sharply today after
news of the merger.
Basic Terms of the Deal Weren’t Unreasonable
• Lorillard shareholders will receive $50.50 per
share in cash.
• They’ll also receive 29.09 shares of Reynolds
American for every 100 Lorillard shares they
• Reynolds touts deal’s premium, but compares
share prices from before merger talk began.
Total deal value is $27.4 billion, or $68.88 per share.
Reynolds Hopes for Big Benefits
• Better product balance, as
Newport adds menthol exposure.
• Synergies will help drive R&D and
innovation for new products.
• Expected to be accretive to
earnings in first year after merger.
• Cost savings will help boost strong
dividends in the future.
CEO Susan Cameron lists reasons favoring merger.
Reynolds CEO Susan Cameron. Source: Reynolds American.
But Huge Changes Were Unexpected
• Reynolds American
will keep the key
• But Imperial Tobacco
will buy several of
Lorillard’s other key
– KOOL, Salem, Winston, and Maverick will go to Imperial.
– Result: Imperial will see its U.S. market share triple.
The Biggest Blunder: Selling blu
• Reynolds is committed to its
competing Vuse brand.
• But blu is the strongest e-
cigarette brand in terms of
market share and has a
huge first-mover advantage
over Vuse and other e-cigs.
As part of the deal, Imperial will buy blu eCigs.
Reynolds Will Face Big Potential Risks
• Adverse FDA menthol decision could
crush Newport’s value to Reynolds.
• Vuse could prove unable to catch up
to blu eCigs success.
• Introduction of Imperial Tobacco as
new, bigger U.S. competitor changes
dynamics of the entire industry.
• Merger doesn’t change negative
trends in sales volume.
Source: Wikimedia Commons.
This Revolution Will Change Manufacturing Forever
"Made in China" -- an all too familiar phrase. But not for much longer: There's a
radical new technology out there, one that's already being employed by the U.S.
Air Force, BMW and even Nike. Respected publications like The Economist have
compared this disruptive invention to the steam engine and the printing press;
Business Insider calls it "the next trillion dollar industry." Watch The Motley
Fool's shocking video presentation to learn about the next great wave of
technological innovation, one that will bring an end to "Made In China" for good.