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Consumer Product Deals Quarterly - Q2 12 - Tobacco groups diversifying away from traditional cigarettes - EY - Global

Consumer Product Deals Quarterly: Q2 12

Tobacco groups diversifying away from traditional cigarettes

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There were just two tobacco deals in the second quarter, but both illustrate the efforts tobacco companies are making to diversify away from traditional cigarettes.

Tobacco

There were just two tobacco deals in the second quarter, a similar number to the first quarter, but both illustrate the efforts tobacco companies are making to diversify away from traditional cigarettes.

Japan Tobacco agreed to pay US$596m for Belgian roll-your-own and make-your-own tobacco group Gryson. According to analysts at J.P. Morgan, the RYO/MYO cigarette market offers attractive growth prospects — its Compound Annual Growth Rate (CAGR) for the 10 years up to 2010 was 3.9%. The analysts wrote in a report, “we think well of this unexpected addition to JT’s portfolio within a growth field.”

Taking a different approach to diversification, Lorillard, the third-largest US tobacco company, purchased Blu Ecigs, a maker of battery-powered electronic cigarettes, which turn heated nicotine-laced liquid into a vapor mist, for US$135m. The strategic shift comes as the US Food and Drug Administration is considering a possible crackdown on menthol-flavored cigarettes, which account for about 90% of Lorillard’s revenues.

Number and value of tobacco deals

Food

There were 212 food subsector deals in the second quarter, an increase of six deals from Q1 12. Total disclosed value in the food sector, however, increased sharply from US$4.5b in Q1 2012 to US$20.8b in Q2 12, driven largely by the five food deals in the top 10 deals, including Nestlé’s megadeal purchase of Pfizer’s infant-nutrition business.

Number and value of tobacco deals

Beverage

The beverage sector showed a similar pattern of a modest decline in volume accompanied by a surge in total disclosed value. Deal volume in the subsector slipped from 64 deals in the first quarter to 57 in the second, but total deal value increased from US$2.5b to US$29.1b. Once again it was the announcement of one megadeal (AB InBev’s purchase of Modelo) and four other top 10 deals that drove the increase in value.

Number and value of tobacco deals

Household and personal care

Deal volume in the household and personal care sector was broadly stable with 32 deals in Q2 12 compared with 33 deals in Q1 12, although total disclosed deal value increased from US$490m to US$670m. There were no HPC transactions in the top 10 deals.

Number and value of tobacco deals


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