Mega Merger in the Cigarette Industry

The era of the mega-merger is well and truly here: BAT and Reynolds, tobacco giants, have agreed to merge with the former subsuming the latter.

This will create a giant tobacco firm, with a range of brands including Rothmans and Camel, and BAT hopes to make cost savings of $400m as a result. This implies that there are economies of scale resulting from the merger.

My other thought is that the companies are aware of the fact that in the developed world, there's is a sunset industry as smoking rates are declining, and this will help protect their market position. I suspect it's only a matter of time before they move into the e-cigarette market in a big way - Camel, for example, have had fashion interests in the past.

Reuters on the BAT/Reynolds merger, highlighting the 'shareholder value' available. It implies that there are risk-bearing economies of scale as well as the chance to acquire the technologies associated with heating rather than burning tobacco.