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A Global Fight Over Discount Smokes 

British cigarette-maker is expected to give Reynolds a run for its money
Jump to full article: Winston-Salem (NC) Journal, 2007-02-25
Author: Richard Craver JOURNAL REPORTER

Intro:

The international squeeze on Reynolds American Inc. could get even tighter after a major European manufacturer enters the U.S. market in April.

And not even two iconic Reynolds cigarette brands - Winston and Salem - may be safe from the manufacturer, Imperial Tobacco Group PLC, according to Bonnie Herzog, an analyst with Citigroup.

Imperial, based in Bristol, England, is the world’s fourth largest tobacco manufacturer. It said on Feb. 8 that it plans to buy CBHC Inc, which operates Commonwealth Brands of Bowling Green, Ky., for $1.9 billion. The deal is expected to close in April.

“An immediate change is not anticipated, but Imperial has much deeper pockets, and therefore should be more competitive” than Commonwealth, Herzog wrote in a report.

Commonwealth, best known for its USA Gold and Montclair discount brands, has gained 3.7 percent in market share in the United States in just 16 years. . . .

Analysts said that Japan Tobacco could end the Reynolds-Gallaher partnership, which could set back Reynolds’ global marketing and sales strategy.

International tobacco manufacturers have been hesitant to enter the U.S. market because of the risk of litigation.

But Gareth Davis, the chief executive of Imperial, said that buying Commonwealth “is consistent with our strategy of entering the U.S. tobacco market in a low-risk manner.” Commonwealth has not lost a product-liability claim, and it was the first manufacturer to sign the 1998 Master Settlement Agreement.

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