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BAT Plans to Cut 2,300 Jobs as Cigarette Makers Retrench

Job cuts to be completed by January.

BAT Plans to Cut 2,300 Jobs as Cigarette Makers Retrench
The British American Tobacco Plc logo sits on a sign standing outside their research and development laboratories in Southampton, U.K. (Photographer: Luke MacGregor/Bloomberg)

(Bloomberg) --

British American Tobacco Plc plans to cut 2,300 jobs as cigarette sales decline in major markets and U.S. President Donald Trump vows to tighten restrictions on new alternatives to smoking.

The maker of Lucky Strike cigarettes expects to complete the job cuts, which will affect more than 20% of management positions, by January. The move comes five months after Jack Bowles replaced Nicandro Durante as chief executive officer.

Tobacco companies are facing the biggest disruption in decades as the emergence of vaping and the threat of new sales restrictions unsettle investors. The growth of alternatives to smoking has accelerated a decline in cigarette consumption and spurred regulators to clamp down on the new products. Rival Japan Tobacco Inc. recently announced plans to eliminate 3,720 positions as it struggles to deal with the shifts.

BAT shares rose as much as 3% early Thursday in London.

Vaping is in U.S. regulators’ crosshairs following mysterious lung ailments that have afflicted hundreds of people recently.

“We may very well have to do something very, very strong about it,” Trump said Wednesday after meeting with Health and Human Services Secretary Alex Azar and acting Food and Drug Administration Commissioner Ned Sharpless.

The job-reduction plan comes after rival Philip Morris International Inc. said it approached Altria Group Inc. about reuniting after a split about a decade ago. The move would create a global tobacco giant that would dwarf BAT.

Vype, Vuse

The British company has tempered the outlook for growth of its smoking alternatives, which include Vype and Vuse e-cigarettes as well as Glo devices, which heat rather than burn tobacco. The cost-saving program will help it reach its goal of getting 5 billion pounds in revenue from new products by 2023 or 2024, the company said.

What Bloomberg Intelligence says:

British American Tobacco’s new CEO Jack Bowles’ decision to simplify the company’s management structure, including cutting a fifth of senior management roles, won’t impact credit spreads, in our view. While BAT says it will reinvest cost savings in new-generation products, these are facing calls for increased regulation, and we expect credit spreads to continue to be driven by this risk.

British American Tobacco’s New CEO Wields Axe: Credit React

-- Louise Parker, BI credit analyst

Shares of the London-based company have lost about half of their value since their peak in 2017 after the FDA said it might require cigarette makers to reduce nicotine in cigarettes to nonaddictive levels. The agency also made pronouncements against menthol in cigarettes, though hasn’t followed it up with new restrictions.

Menthol cigarettes sold in the U.S. account for about a quarter of BAT’s profit, according to Morgan Stanley analyst Richard Taylor. The FDA’s statement Wednesday that it plans to ban flavors including menthol in vaping products will increase concern about an impending prohibition on that substance in cigarettes, too, he wrote.

--With assistance from Lisa Pham.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

©2019 Bloomberg L.P.