RAI Leadership Change Stokes M&A Speculation

What will Cameron's return to Reynolds American mean for Lorillard?

Published in CSP Daily News

Susan Cameron (Ivey), Daniel Delen Reynolds American (RAI) (CSP Daily News / Convenience Store Petroleum)

Susan Cameron (Ivey), Daniel Delen

WINSTON-SALEM, N.C. -- After rejoining the company's board of directors in Dec. 2013, Susan M. Cameron (Ivey) is returning to the role of president and CEO of Reynolds American Inc. (RAI) on May 1. Cameron replaces Daniel M. Delen, who has chosen to retire and resign from the RAI board. The move, bringing an M&A expert back into the fold, has rekindled rumors about RAI acquiring rival Big Three tobacco company Lorillard Inc.

As reported in a 21st Century Smoke/CSP Daily News Flash, Cameron served as president, CEO and a member of the RAI board from 2004 to 2011. She also served as chairman of the board of RAI between 2006 and 2010. In 2011, she retired from the company and the board. She rejoined RAI's board in last December.

"Susan's 30 years of experience with our companies and her previous service in this role make her an exemplary choice for this key leadership position," said Thomas C. Wajnert, nonexecutive chairman of RAI's board. "Susan was the architect of RAI's 'total tobacco' strategic direction more than 10 years ago, and we're pleased to have her back with the company to further our vision of transforming tobacco."

Cameron said, "I'm excited about returning to RAI. Daan has provided tremendous leadership over the last three years, and as a result, RAI and its operating companies are foundationally very strong. Being back on the board of directors for the last five months gave me the opportunity to dive back into the businesses. RAI's strategic mission to transform the tobacco industry is a fascinating journey. I'm looking forward to the opportunity to not just advance, but accelerate, that momentum as CEO."

In a research note, Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, New York, said, "While we are disappointed to see Delen relinquish the CEO role, we feel confident in Cameron's ability to lead RAI into its next generation of growth. … Cameron is a known entity, and this change should be broadly viewed as positive."

She also said that given Cameron's prior tenure with British American Tobacco (BAT) 20 years before the combination of R.J. Reynolds and Brown & Williamson (B&W) in 2004, "We believe this could increase the chances for and signals a potential strategic partnership with BAT. Furthermore, we continue to believe the chances are great that RAI could acquire [Lorillard]."

Speculation erupted in March that RAI would make a bid for Greensboro, N.C.-based Lorillard, priced as high as $22 billion. The companies declined to comment on the rumor.

Nik Modi, analyst with RBC Capital Markets, Chicago, agreed, pointing out that Cameron is "known for her savvy integration during key M&A transactions (B&W/RJR merger; Conwood (now known as American Snuff Co.)."

But he said, "Logical questions surround the timing of the announcement post close (a week before earnings) and actual announcement itself (Susan coming back as CEO after she had already retired)."

Delen has served as president and CEO of RAI since 2011. He will continue to consult with the company for two years to ensure a smooth transition and provide strategic insights and other services to management.

"Under Daan Delen's leadership, RAI and its operating companies have demonstrated that their strategic plans to transform tobacco are sound, and their ability to operationally deliver against those strategies is excellent," Wajnert said.

Lorillard, through its Lorillard Tobacco Co. subsidiary, makes the Newport cigarette brand, the top-selling menthol and second-largest selling cigarette in the United States. Its other cigarette brands include Kent, True, Maverick and Old Gold brand names. Lorillard, through its LOEC Inc. subsidiary, is also a leading U.S. electronic cigarette company with its blu eCigs brand.

Winston-Salem, N.C.-based Reynolds American is the parent company of R.J. Reynolds Tobacco Co. (cigarette brands include Camel, Pall Mall, Winston, Kool, Doral, Salem, Misty and Capri); American Snuff Co. LLC (smokeless tobacco brands include Grizzly and Kodiak); Santa Fe Natural Tobacco Co. Inc. (Natural American Spirit 100% additive-free natural tobacco products, including styles made with organic tobacco); Niconovum USA Inc. (nicotine replacement therapy products under the Zonnic brand); and R.J. Reynolds Vapor Co. (VUSE brand of e-cigarettes).