Reynolds Disposes Its Lane Unit - Analyst Blog

Reynolds American Inc. (RAI) announced the sale of Lane Limited to the Denmark based Scandinavian Tobacco Group for $205 million cash. The deal is expected to close by middle of 2011. The Scandinavian Tobacco Group will acquire the two Lane facilities in Tucker, presently employing 110 workers, and operate them all by themselves.

Reynolds' decision to sell the subsidiary is a step to concentrate more on the key brands in the cigarette, moist snuff and modern smoke-free categories of the tobacco business. Lane Limited is based in Tucker, and its brands include Kite and Bugler Roll-Your-Own tobacco and Captain Black pipe tobacco. However, the subsidiary reportedly contributes 4 cents per share to the annual earnings of Reynolds American, the Winston-Salem based company.

Scandinavian Tobacco Group leads the world in pipe tobacco sales, and shares the lead position internationally on the basis of cigar sales. It has a strong position within fine-cut tobacco in Scandinavia. The company deals with ‘other tobacco products' and manufactures brands like Cafe Creme, Henri Wintermans, Colts and Mercator, and Swedish Match's Macanudo, Partagas, Punch and La Paz. In October, 2010, it formed a 49/51 joint venture combining all its tobacco business with the cigars and pipe tobacco business of Swedish Match.

Reynolds is restructuring its units to facilitate maximization of cigarette manufacturing efficiency and expand smokeless tobacco production capacity. It closed down two of its units in May, 2010, in Winston-Salem and Yabucoa and moved the operation of these plants to its largest facility in Tobaccoville. Reynolds also disclosed its decision to close down Whitaker Park plant by the middle of 2011. Meanwhile, another operating company of Reynolds, American Snuff Company is enhancing its smokeless tobacco processing and manufacturing capacity by investing in facilities in Memphis and Clarksville, Tenn. 

The tobacco market giant and parent of several tobacco companies including R.J. Reynolds are cutting down on costs to fend off the loss that gets triggered by rising ban on smoking coupled with several regulations placed on tobacco companies by governments across the globe. They have slashed more than 80% of their local workforce in the past three decades and reduced full-time workers from 15,000 to 2,600.

Currently, we maintain a ‘Neutral' rating on the stock.  Further, Reynolds which competes with Lorillard Inc. (LO) holds a Zacks #3 Rank, which translates into a short-term ‘Hold' rating.

 
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