Reynolds American Clears Conwood Hurdle

FTC grants early termination of waiting period

WINSTON-SALEM, N.C. -- Reynolds American Inc. said that it has received notification that the Federal Trade Commission (FTC) has granted early termination of the Hart-Scott- Rodino Antitrust Improvements Act of 1976 waiting period related to RAI's proposed acquisition of a holding company that owns Conwood, the nation's second largest manufacturer of smokeless tobacco products.

Reynolds American said it still expects to close the $3.5 billion acquisition in the second quarter.

In April, as reported in CSP Daily News, the company [image-nocss] announced it would buy Memphis, Tenn.-based Conwood, which makes Kodiak and Grizzly brands of moist smokeless tobacco, in a bid to enter the smokeless-tobacco market. Conwood had 2005 sales of more than $450 million and operating income of $250 million, Reynolds said.

Conwood truly is an excellent acquisition, Susan M. Ivey, chairman and CEO of RAI, during an investor conference call in late April after the deal was announced. This acquisition provides us with a significant platform that would have taken years to build. Adding [Conwood's] No. 2 position in the growing moist snuff category to our portfolio gives us a strong presence in virtually every domestic tobacco category. In addition, the terms of this transaction will enhance Reynolds American's profits and cash flow.

Conwood is the only company to compete in all five segments of the U.S. smokeless tobacco industry, manufacturing moist and dry snuff; and loose leaf, plug and twist chewing tobaccos. Conwood holds the No. 1 or No. 2 position in every segment of the smokeless tobacco market. Moist snuff accounts for more than 70% of Conwood's sales, led by both its premium-priced Kodiak and its rapidly growing value-priced Grizzly.

Reynolds American is also the parent company of R.J. Reynolds Tobacco Co.; Santa Fe Natural Tobacco Co. Inc.; R.J. Reynolds Global Products Inc.; and Lane Ltd. Conwood will operate as a subsidiary of Reynolds American. Bill Rosson, Conwood's CEO, will report to Jeffrey A. Eckmann, Reynolds American's executive vice president of strategy and business development.

"Conwood's management team has an excellent record of delivering growth and building strong brands," said Eckmann. "They have doubled their share of the moist snuff market over the last five years. Their commitment to product innovation and brand building is an excellent fit with the strategic direction of all of RAI's operating companies."

Reynolds American will combine its Lane subsidiary with Conwood to consolidate and drive the companies' portfolio of other tobacco products. Lane markets a wide range of specialty tobacco products, including cigars and little cigars; roll-your-own and pipe tobaccos; and Dunhill and other premium international cigarettes. The headquarters of the newly combined companies will be located in Memphis, and full integration is expected to be completed by the end of 2007.

A week after Reynolds American took a plunge into the smokeless-tobacco pool, R.J. Reynolds Tobacco Co. and Philip Morris USA both dipped their toes into the OTP (other tobacco products) waters with the beginning of tests on their first smokeless products. For RJR, the new product is Camel Snus, a smokeless and spitless tobacco product that will be introduced in two markets. Meanwhile, PM USA will test market a smoke-free and spit-free tobacco pouch product called Taboka.

Also, UST Inc. said it is planning to test a new smokeless tobacco product in Austin, Texas. Thhe company is launching Skoal Dryspitless tobacco in small pouches.

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