Cigarette maker buys smokeless tobacco company
Reynolds American Inc., the second-largest US cigarette company, will jump into the smokeless tobacco market by buying Conwood, maker of the Kodiak and Grizzly brands, for $3.5 billion.
The purchase will give Reynolds the second-largest US manufacturer of snuff and chewing tobacco, the Winston-Salem, N.C.-based company said yesterday. Conwood is being sold by Chicago's Pritzker family, which controls assets including the Hyatt hotel chain.
Reynolds, the maker of Camel, Doral, and Winston cigarettes, is trying to hold on to customers switching to smokeless brands such as UST Inc.'s Copenhagen and Skoal as restaurants and employers ban smoking. The purchase may spur rivals including Altria Group Inc. to enter the $3.8 billion-a-year market, which is growing 5 percent a year.
''The smokeless business is attractive for its growth," said Herb Achey, an analyst at New York-based U.S. Trust, which owns Altria, Reynolds, and UST shares among about $107 billion in assets.
Reynolds ''paid through the nose for this business," at 12.8 times earnings before interest, taxes, depreciation, and amortization, said Prudential Equity Group LLC analyst Robert Campagnino in a report yesterday. He rates the shares ''neutral weight."
