LO Acquires UK E-Cig Maker SKYCIG to Expand Internationally

  • LO announced this morning its acquisition of SKYCIG for £30MM in cash, plus an additional £30MM to be paid in 2016 based on the achievement of certain financial benchmarks
  • SKYCIG is a three year old UK based company with ~ 300,000 users that offers e-cigs in traditional and flavored offerings (including vanilla, cherry, and cinnamon)
  • LO has indicated the it plans to leave the current management in place
  • Among Big Tobacco, LO was first to the U.S. e-cig market through its acquisition of Blu in April 2012
  • LO currently enjoys the largest market share in the U.S.; today’s acquisition, while relatively small, allows LO to expand internationally in a developed and fragmented e-cig market
  •  We’ve expected Big Tobacco to look outside the U.S. shores for growth, and LO remains ahead of the pack, with both RAI and MO only releasing their e-cig brands in initial test states in the U.S. within the last two months
  • We believe there’s huge runway for the e-cig category in the U.S. and internationally, as we’re in the early innings of manufacturers creating brand awareness, identity, and appeal (for now consumer preference has been anchored on availability and taste)
  • We’re focused on what restrictions the FDA may place on e-cigs in the U.S. If, for example, the FDA decides to restrict online sales and/or flavored offerings, we believe that Big Tobacco and select e-cig manufacturers with strong retail relationships will stand to benefit 

Investment: we remain bullish on LO’s portfolio of full-flavored and menthol offerings and leading share in e-cigs. We’re cognizant that any restrictions that the FDA may place on menthol would have material negative implications for the stock. For now, we’re bullish on the stock over the immediate term TRADE and intermediate term TREND durations (see chart below).

 

LO Acquires UK E-Cig Maker SKYCIG to Expand Internationally - zz. lo


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