May 31, 2006 - Reynolds American Inc.(RAI) on May 31, 2006 completed its $3.5 billion acquisition of a holding company (from business interests of the Pritzker family) that owns Conwood (traces its roots back to 1782 the founding of the Garrett Snuff Company), the nation's second largest manufacturer of smokeless tobacco products. Conwood is UST's largest competition, its share of the U.S. moist snuff market is approximately 13%.
The transaction, which was announced April 25, 2006, received required approval from the Federal Trade Commission on May 23, 2006. Reynolds American funded the $3.5 billion acquisition purchase price with the net proceeds of its private offering of $1.65 billion of senior secured notes and borrowings under its $1.55 billion senior secured term loan facility, each of which also closed today, as well as available cash. In addition, RAI entered into a $550 million revolving credit facility today.
“We are excited about the growth prospects Conwood brings to Reynolds American,” said Susan M. Ivey, RAI’s chairman and chief executive officer. “Conwood’s strong, well-positioned brands are gaining share in the growing moist snuff market, and its high margins will enhance our ability to continue to provide an excellent return to our shareholders.”
Reynolds American will combine its Lane Limited subsidiary, currently headquartered in Tucker, Ga., with Conwood in order to drive growth in the companies’ portfolio of other tobacco products (OTP). Lane markets a range of specialty tobacco products, including cigars and little cigars; roll-your-own and pipe tobaccos; and Dunhill and other premium international cigarettes. The headquarters of the combined companies will be in Memphis, Tenn., and full integration of the two companies is expected to be completed by year-end 2007.
Conwood is the only company to compete in all five segements of the U.S. smokeless tobacco industry, manufacturing moist and dry snuff, and loose leaf, plug and twist chewing tobacco. Conwood holds the No. 1 or No. 2 position in every segment of the smokeless tobacco market. Moist snuff accounts for more than 70% of Conwood Sales, led by both its premium priced brand Kodiak brand and its rapidly growing value-priced Grizzly brand. Conwood will operate as a subsidiary of Reynolds American (Reynolds American News, April 2006). The purchase of Conwood gives Reynolds a quarter of the U.S. smokeless market (The Advocate, 9/19/2006).
Susan Ivey RAI chairman, president and CEO points out that Conwood has an impressive performance record. It’s the nation’s second largest manufacturer of moist snuff. It has No. 1 or No. 2 position in every smokeless category. Conwood has been the growth leader in the moist snuff category, where it has built a 23% share of the market. The moist snuff category, itself has been growing at an annual rate of 4 to 5% for the past five years.” Ivey said. Ivey goes on to say, this purchase, “provides us with an immediate platform that would have taken us years to build,” Ivey said. This purchase “gives us a strong presence in virtually every domestic tobacco category.”
FACT SHEET - Reynolds American enter smokeless tobacco market with acquisition of Conwood.
Reference: Reynolds American Completes Acquisition of Conwood, Reynolds American, 5/31/2006; Reynolds American Enters Smokeless Tobacco Category Via Acquisition of Conwood.