Lorillard buys UK-based electronic cigarette firm

[October 02, 2013]  RICHMOND, Va. (AP) -- Lorillard Inc., the nation's third-biggest tobacco company, has acquired U.K.-based electronic cigarette maker SKYCIG for 30 million pounds (about $49 million) to expand its global presence in the fast-growing business.

Greensboro, N.C.-based Lorillard, said Tuesday it also will pay up to another 30 million pounds ($49 million) more in 2016 if the company meets certain financial performance benchmarks.

"It has been Lorillard's mission to be first and best in the electronic cigarette category," Lorillard CEO Murray Kessler said in a statement. "Our mission is now a global one."

Electronic cigarettes are battery-powered devices made of plastic or metal that heat a liquid nicotine solution, creating vapor that users inhale. Users get their nicotine without the thousands of chemicals, tar or odor of regular cigarettes. And they get to hold something shaped like a cigarette, while puffing and exhaling something that looks like smoke.

The world's biggest tobacco companies have either bought into, or are closely watching, the category as they look to diversify beyond their traditional business. Since the devices hit the market nearly a decade ago, sales have spiked so quickly some analysts predict they will outsell traditional cigarettes within a decade.

The market is developing at about the same pace in both the U.S. and the U.K., accounting for about 1 percent of their respective traditional cigarette markets, Stifel Nicolaus analyst Chris Growe wrote in a client note.

Growe said the acquisition will "offer little in the way of revenue and profit for Lorillard, but it gives the company a foothold in its first international market with the potential for fast growth in the future."

Kessler said the company, which acquired e-cigarette maker Blu Ecigs for $135 million last year, firmly believes that e-cigarettes "may present the most significant harm reduction option ever made available to smokers and we look forward to working with regulators around the world to confirm this conclusion."

In the U.S., the Food and Drug Administration has said it plans to set marketing and product regulations for electronic cigarettes in the near future as part of its authority to regulate tobacco products. They could still be regulated as drugs or drug-delivery devices, if they are "marketed for therapeutic purposes" -- for example, as a stop-smoking aid. The U.K. has proposed regulation that will go into effect in 2016 regulating e-cigarettes as medicinal products.

SKYCIG will operate as a separate subsidiary and Lorillard said it intends to keep its current management team and locations in Great Britain.

Lorillard Inc., the oldest continuously operating U.S. tobacco company, was spun off from Loews Corp. in 2008. It shares added 10 cents to $44.88 Tuesday

[Associated Press; By MICHAEL FELBERBAUM]

Michael Felberbaum can be reached at http://twitter.com/MLFelberbaum.

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