In a move headed for the Irony Hall of Fame, No. 2 tobacco marketer Reynolds American (RAI), parent of R.J. Reynolds, announced Wednesday that it's buying Niconovum, a Swedish marketer of smoking-cessation products, for $44 million.
It's a sea change from recent decades, when tobacco companies inclduding Reynolds, based in Winston-Salem, North Carolina, denied that nicotine was even addictive. "Niconovum's products have great potential in meeting consumer demand and public health objectives," Reynolds American's chairman-president-CEO Susan M. Ivey said in a statement. "This acquisition extends the harm-reduction strategies RAI and its operating companies have been developing over the past several years."
Smoking Rates are Falling (Mostly)
It makes sense that Reynolds would be the first tobacco company to sell products designed to help its customers stop using its other products. Niconovum markets nicotine gum and mouth spray. Its Web site points out that tobacco "is a leading cause of preventable deaths in the United States" and that "no tobacco product has been shown to be safe and without risks, and quitting tobacco use significantly reduces the risk for serious disease."
Buying Niconovum shows good business sense, too. R.J. Reynolds's third-quarter cigarette shipment volume declined 11% from a year earlier, compared with an industry decline of 12.6%. Still, smoking rates in the U.S. are creeping back up. The Centers for Disease Control and Prevention last year estimated that 20.6% of adults were smokers -- a rate essentially unchanged since 2004, when 20.9% were smokers -- but found a small uptick in the percentage of adult smokers, the first increase noted since 1994.
Shares of Reynolds American have gained 27% this year, as investors bet that cash-strapped, stressed-out consumers wouldn't give up their smokes. The company spent more than $760,000 on lobbying in the the third quarter.
Covering All the Bases
It may take several years for Niconovum products to get FDA approval and appear on U.S. store shelves, says a Reynolds representative, who notes that the two lines of business are not necessarily incongruous: "If you think about it, they have the same consumer base." Any company that develops an effective anti-nicotine treatment will have a competitve advantage, the representative says.
But some critics question Reynolds's motives. "It looks like RJR is trying to find new ways to profit from the addiction their products cause," says a publicist for the Campaign for Tobacco-Free Kids. Smoking causes at least 30% of cancer deaths, including more than 80% of lung cancer deaths, and 80% of deaths from chronic obstructive pulmonary disease, according to the CDC.
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