RJR Goes to BAT on Vapor

Tobacco companies sign preliminary deal to share technology, R&D, more

WINSTON-SALEM, N.C. & LONDON -- While R.J. Reynolds Tobacco Co. (RJR) and British American Tobacco Holdings Ltd. (BAT) continue to negotiate the specifics, the companies have announced that they have signed a vapor product technologies-sharing “term sheet.”

R.J. Reynolds RJR British American Tobacco BAT electronic cigarettes e-cigarettes vapor

The term sheet is the first step in forging an agreement, with a goal of reaching a definitive contract by the end of 2015.

As reported in a 21st Century Smoke/CSP Daily News Flash, it provides a framework for collaboration and mutual cross-licensing of vapor product technologies through 2022. The companies’ collaboration will include a process for joint research and development activities and cooperation on regulatory, scientific and manufacturing issues related to vapor products.

“This proposed technology-sharing agreement makes great business sense as we lead the transformation of the tobacco industry, allowing us to continue to deliver innovative, high-quality vapor products to adult tobacco consumers seeking smoke-free alternatives,” said Debra Crew, R.J. Reynolds’ president and chief commercial officer.

Separately, BAT also has signed an agreement to acquire 100% of the CHIC Group in Poland, including an e-liquids production facility, a research-and-development center and Polish e-cigarette brands including VOLISH, P1, Provog, Cottien, LiQueen and Aromativ.

“Acquiring the CHIC Group … provides BAT with scale and market reach through Europe’s largest e-cigarette retailing network, as well as important manufacturing and R&D capabilities,” said BAT managing director of next-generation products (NGP) Kingsley Wheaton. “Today, we’ve announced two significant milestones to enhance our next-generation product business globally, further enabling us to meet the demands of today’s consumer.”

Commenting on the deal, Bonnie Herzog, managing director of beverage, tobacco and convenience-store research at Wells Fargo Securities LLC, New York, said, “We believe this strategic framework could ultimately have a significant positive financial impact, particularly for RAI, since RAI's licensing arrangement with BAT allows RAI to participate in the global e-cig category, which we continue to anticipate will generate significant growth and profits.”

She continued, “By joining forces and leveraging each other's strengths, these two companies will likely accelerate the pace of e-cig/vapor/reduced risk products' growth on a global basis and importantly will be able to more successfully engage with regulators both in the U.S. and internationally.”

Winston-Salem, N.C.-based RJR, an indirect subsidiary of RAI, is the second-largest tobacco company in the United States. RJR’s cigarette brands include Newport, Camel and Pall Mall. These brands, and its other brands, including Doral, Misty and Capri, are manufactured in a variety of styles and marketed in the United States.

Based in London, BAT is a global tobacco group with more than 200 brands sold in more than 200 markets.

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