Tobacco Deal Gives Menthol Critics a New Soapbox

July 14 (Bloomberg) -- Reynolds American Inc., the producer of Camel and Pall Mall cigarettes, agreed to buy rival Lorillard Inc. for $27.4 billion including debt. Here are the numbers behind the companies and their top brands.

Reynolds American Inc. (RAI)’s deal to buy Lorillard Inc. (LO) and its Newport menthol brand sets up a fresh showdown between the tobacco industry and foes who say mint-flavored cigarettes pose a threat to black smokers and youths.

For Reynolds, Newport was the biggest selling point in yesterday’s $25 billion agreement to acquire its tobacco rival. The product accounts for about 12 percent of the total U.S. market and has grown over the past three years, providing a bright spot in a declining industry. Menthols appeal to smokers because of their cool, soothing taste, and about three-quarters of adult black smokers prefer them over regular cigarettes.

In 2011, a panel of outside advisers to the Food and Drug Administration suggested that eliminating menthol cigarettes would benefit public health. While stopping short of proposing a ban, the FDA found that menthol additives probably make it harder for smokers to quit. The cigarettes are associated with increased dependence, especially among blacks, the agency said in a preliminary evaluation. It’s currently seeking input over whether to scale back or prohibit menthol additives.

“This deal will continue to give fuel to our fire on the issue,” said Delmonte Jefferson, executive director of the National African American Tobacco Prevention Network, one of several groups advocating for a FDA ban on menthol in cigarettes. “The menthol issue isn’t going to go away, and we’re going to keep it up.”

Photographer: Chris Goodney/Bloomberg

Menthol accounts for about a third of the $90 billion in U.S. cigarette sales, with Newport leading the market. Close

Menthol accounts for about a third of the $90 billion in U.S. cigarette sales, with... Read More

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Photographer: Chris Goodney/Bloomberg

Menthol accounts for about a third of the $90 billion in U.S. cigarette sales, with Newport leading the market.

Reynolds Undeterred

In proceeding with the deal, Reynolds was undeterred by menthol regulatory concerns and is confident that the products won’t be banned, according to a person with knowledge of the deliberations. Reynolds Chief Executive Officer Susan Cameron said in a statement yesterday that the current FDA review should result in “reasonable” decisions.

“The agency’s commitments to science-based regulation, coupled with a transparent rulemaking process, will allow us to manage this issue over time,” Cameron said.

Menthol accounts for about a third of the $90 billion in U.S. cigarette sales, with Newport leading the market. The brand, once known for the “Alive With Pleasure” slogan, also is the second-most-popular cigarette overall, trailing only Altria Group Inc. (MO)’s Marlboro. Reynolds, based in Winston-Salem, North Carolina, makes its own menthol brands -- Kool and Salem, and a minty version of Camel -- though they don’t sell as well.

Legal Product

“There’s no scientific basis for the ban and the FDA has said it’s going to watch the science,” said Ken Shea, an analyst at Bloomberg Industries. “It continues to be a legal product, and consumer companies typically market their products to a target audience.”

Still, local governments are taking steps to rein in menthol. Chicago Mayor Rahm Emanuel has pushed to reduce sales of the minty cigarettes in his city, and in December the municipality agreed to restrict them near schools. Berkeley, California, moved forward on a similar ban this year.

Opponents such as Jefferson and Emanuel say the menthol flavor makes it harder for targeted buyers to quit and vulnerable populations, particularly young black smokers, are disproportionately targeted.

Lorillard has defended the products on a website called “Understanding Menthol,” saying that black smokers consume fewer cigarettes than their white counterparts. In addition, research doesn’t indicate menthol brands are any more dangerous than other types, the company said, while conceding that “all cigarettes are dangerous.”

Attractive to Youths

The merger presents new threats to public health because it puts Newport and Reynolds’s Camel -- the two brands most often criticized for appealing to young people -- under one roof, said Matthew Myers, president of the Campaign for Tobacco-Free Kids, an advocacy group in Washington, D.C.

“The risk that the marketing strength of this new company could undo much of the progress that’s been made makes it absolutely critical that FDA address both the menthol issue and the ongoing marketing that we continue to see,” Myers said in an interview.

Jennifer Haliski, a spokeswoman for the FDA, said the agency didn’t have any role in regulating how the merger came together. The FDA is current evaluating the comments, data and research submitted after it announced plans to consider new rules last July, she said. That will “help the agency make the best decisions about possible regulatory actions that it might take with respect to menthol in cigarettes,” Haliski said.

LGBT Smokers

In a 2013 resolution, the Chicago Board of Health said that vulnerable consumers are disproportionately using menthol cigarettes. That includes black, poor and young consumers, as well as lesbian, gay, bisexual and transgender populations. Among kids 12 to 17 who smoke, 72 percent of blacks and 71 percent of LGBT consumers use menthol brands, according to the resolution.

LGBT teens tend to use smoking to ease anxiety and menthol flavoring makes that addiction more attractive, said Scout, director of CenterLink’s Network for LGBT Health Equity. Scout, who goes by one name, said he’s meeting this week with representatives of other vulnerable populations to reignite their anti-smoking campaign.

“Any time big tobacco get bigger, we get nervous,” said Scout, whose organization gets funding from the Centers for Disease Control and Prevention. “We are very concerned about menthol. It’s a gateway. Once a habit gets embedded, it becomes a socially transmitted disease.”

Regulatory Patchwork?

With a big city like Chicago taking steps to restrict menthol, it’s likely other places will follow, said Kenneth Warner, a professor of health management and policy at the University of Michigan School of Public Health. That means tobacco companies may soon face a patchwork of restrictions even if they don’t get a full U.S. ban, he said.

“A lot of us in the field of tobacco research have been very disappointed that the FDA still hasn’t taken any action,” Warner said.

Clergy from across the U.S. are scheduled to meet in August in Atlanta to discuss ways to limit the sale of menthol cigarettes to vulnerable populations, said Jesse Brown, chairman of the Ban Menthol Campaign. The Reynolds takeover of Lorillard will give the effort more publicity, the Lutheran minister from Philadelphia said in an interview.

“It gives us another point of reference to raise the issue,” he said.

To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Anna Edney in Washington at aedney@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net John Lear

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