Reynolds American Collaborates with British American Tobacco



Reynolds signs technology-sharing term sheet with British American Tobacco

On September 22, 2015, Reynolds American’s (RAI) indirect subsidiary, R.J. Reynolds Tobacco Company, signed a technology-sharing term sheet with British American Tobacco (BTI).

To give you an historical perspective, on July 30, 2004, the US assets, liabilities, and operations of Brown & Williamson Holdings (or B&W), a wholly owned subsidiary of British American Tobacco, combined with R.J. Reynolds Tobacco Company, a wholly owned subsidiary of Reynolds American. As a result, Brown & Williamson owned approximately 42% of Reynolds American’s outstanding common stock.

Additionally, after Reynolds American’s acquisition of Lorillard Tobacco, British American Tobacco maintained its 42% ownership in Reynolds American through an equity investment of ~$4.7 billion.

Article continues below advertisement

Term-sheet framework

The recent vapor technology term sheet with British American Tobacco (BTI) provides a framework for collaboration and mutual cross-licensing of vapor product technologies through 2022. But the specifics of the agreement will reach a definitive contract by the end of 2015. The term sheet is the first step in reaching a definitive agreement under which R.J. Reynolds Tobacco and BTI will collaborate to develop next-generation vapor products.

The collaboration will include a process of combined research and development (or R&D) activities and cooperation on regulatory, scientific, and manufacturing issues related to vapor products.

Peers with expanded collaboration agreements

After the spin-off of Philip Morris International (PM) from the Altria Group (MO), both companies collaborated to market MO’s MarkTen e-vapor cigarette internationally. More recently, both companies have expanded their e-vapor development deal to include a joint research, development, and technology-sharing framework for unconventional cigarettes.

To learn more about the Philip Morris’s expanded agreement with Altria Group, please read Philip Morris’s Spin-off from Altria, with New Collaborations.

Beneficial to RAI

Reynolds American (RAI) believes the proposed technology-sharing agreement is a beneficial step for the future growth of the company. This is due to the transformation of the tobacco industry, which will help RAI deliver innovative, high-quality vapor products to adult tobacco consumers seeking smoke-free alternatives.

RAI has exposure in the First Trust Consumer Staples AlphaDEX ETF (FXG) with 3.4% total portfolio weight as of September 25, 2015.

To read more industry updates and analyses, please visit our Consumer Products page.


More From Market Realist