Natural American Spirit to Retain U.S. Citizenship

RAI selling brand’s international rights to JT Group to focus on growth domestically

WINSTON-SALEM, N.C.& TOKYO -- Saying that “Natural American Spirit has achieved excellent international growth over the past several years,” Susan M. Cameron, Reynolds American Inc. president and CEO announced that RAI is selling the international rights to the tobacco brand name and associated trademarks, along with the international companies that distribute and market the brand outside the United States, to the Japan Tobacco Group of companies (JT Group) in an all-cash transaction with a value of approximately $5 billion.

Reynolds American Rai Natural American Spirit Japan Tobacco JT

As reported in a 21st Century Smoke/CSP Daily News Flash, the deal does not include the rights to the Natural American Spirit brand name and associated trademarks in the U.S. market, U.S. duty-free locations, U.S. territories or in U.S. military outlets, all of which will be retained by Santa Fe Natural Tobacco Co. Inc., a wholly owned subsidiary of RAI.

“When backed by the strength of the JT Group’s international distribution, sales force and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate,” she said.

Cameron said that once the transaction is complete, the international rights to all of RAI’s operating companies’ cigarette trademarks will be owned by international tobacco companies, allowing the RAI companies to focus on brand growth in the U.S. market.

Selling the international trademark rights to a company with an established global infrastructure was more advantageous to RAI than investing in an international infrastructure capable of supporting Natural American Spirit’s growth potential, she said.

The international companies RAI is selling employ about 280 people, primarily in Europe and Japan. Those companies distribute and market Natural American Spirit additive-free and organic styles of cigarettes and roll-your-own (RYO) tobacco primarily in European and Asian markets. The brand’s largest markets are Japan, Germany and Switzerland.

Since its launch in 1982 by Santa Fe Natural Tobacco, the Natural American Spirit brand “has provided a unique product offering and established a special brand positioning as the only truly global ‘additive-free,’ premium cigarette with a marketing theme that is environmentally conscious and socially progressive,” JT Group said.

"Natural American Spirit, which has a strong and international presence in a premium priced category, will allow the JT Group to further extend its brand portfolio. This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our Group's business foundation," said Mitsuomi Koizumi, president and CEO of the JT Group.

The purchase agreement also contains a non-compete clause that restricts Reynolds American and JT from producing, selling, distributing and developing natural, organic and additive-free combustible tobacco cigarettes and RYO products in each other's territories of business, for a period of up to five years from the close of the transaction, according to Bonnie Herzog, tobacco analyst at Wells Fargo Securities, New York.

“This sale was a very smart and strategic move by RAI to monetize a very valuable asset while retaining its crown jewel, in our view—the [Natural American Spirit] business in the U.S.,” Herzog wrote in a research note. “RAI's position in the overall tobacco industry is stronger than ever, and it has one of the best brand portfolios in the industry.”

The transactions must be approved by regulatory authorities in a number of countries. The companies are working to attain regulatory approvals by early 2016, and the transaction will close thereafter.

All current international employees will become employees of the JT Group of companies following the closing of the transaction. JT Group said the existing operations of the acquired companies will remain unchanged “to fully benefit from their extensive knowledge and experience.”

Japan Tobacco Inc., Tokyo is a leading international tobacco company. Its sells its products in more than 120 countries, and its brands include Winston, Camel, Mevius and LD.

Winston-Salem, N.C.-based Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Co.; Santa Fe Natural Tobacco Co. Inc.; American Snuff Co. LLC; Niconovum USA Inc.; Niconovum AB; and R.J. Reynolds Vapor Co.

R.J. Reynolds Tobacco's brands include Newport, Camel and Pall Mall cigarettes; American Snuff's brands include Grizzly and Kodiak smokeless tobacco products; Santa Fe Natural Tobacco manufactures and markets Natural American Spirit 100% additive-free natural tobacco products, including styles made with organic tobacco; Niconovum USA and Niconovum AB market nicotine replacement therapy products in the United States and Sweden, respectively, under the Zonnic brand name; and R.J. Reynolds Vapor manufactures and markets Vuse electronic cigarettes.

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