BAT’s $31.5 Billion Ouchie: Big Tobacco’s Colossal Blunder in the Land of the Free

In a twist that’s more bitter than a cold cup of coffee, British American Tobacco (BAT), the titan behind some of America’s most beloved death sticks (read: cigarettes), is swallowing a bitter pill to the tune of a whopping $31.5 billion. Yes, you read that right. It’s one of the most colossal corporate facepalms in recent history, rivaling the infamous AOL-Time Warner merger mishap.

This accounting nightmare, which is giving CFOs across the globe cold sweats, is largely thanks to BAT’s 2017 shopping spree where it bagged the U.S. maker of Newport and Camel cigarettes for a cool $49 billion. Fast forward to today, and it’s more like they bought a luxury yacht that turned out to be a leaky dinghy.

As if the gods of irony were having a field day, BAT’s acquisition is now compared to the AOL-Time Warner fiasco, which saw a staggering $45.5 billion charge back in 2003. It’s like BAT looked at that historic mess and said, “Hold my beer.”

In a world where cigarette smoking is going the way of the dinosaurs, BAT and its fellow tobacco giants have been scrambling to pivot to alternatives like e-cigarettes and heated tobacco devices. It’s like watching someone trade in their horse and buggy for a Tesla.

But wait, there’s more drama. The FDA is sharpening its knives for a ban on menthol-flavored cigarettes next year, which just so happen to be more than half of BAT’s U.S. sales. Talk about bad timing. It’s like throwing a pool party and then finding out there’s no water in the pool.

BAT, once the cool kid on the block with brands like Newport, Kent, Dunhill, and Lucky Strike, is now facing the music. Smokers are ditching the pricey packs for cheaper smokes and illegal disposable vapes, making BAT’s U.S. performance as lackluster as a wet firework.

To add salt to the wound, BAT’s shares took an 8% nosedive, putting it on track for its worst performance in over a decade. Its rivals, Altria and Philip Morris, are also feeling the heat, with their shares dropping faster than a hot potato.

This isn’t the first time a big acquisition has led to a big write-down. Remember ConocoPhillips’ $25.4 billion whoopsie in 2008, or GE’s $22 billion blunder in 2018? And let’s not forget Procter & Gamble’s $8 billion shave off Gillette in 2019. It’s like a club of companies that bought the ticket for the Titanic.

BAT’s foray into the U.S. market in 2017, when it took full control of Reynolds American, now looks more like a high-stakes gamble than a strategic move. And in the smoke-free product race, rivals like Altria are also licking their wounds, especially after their near-total write-off of the Juul investment.

As global tobacco volumes are expected to slump by 3% in 2023, BAT is trying to put on a brave face, reporting growth in its “new products” segment. The company’s grand plan is to generate up to 50% of its revenue from noncombustibles by 2035. But with the FDA playing the role of the strict parent, yanking e-cigarettes off the market, it’s an uphill battle.

In the end, BAT’s big bet on traditional cigarettes in the U.S. is looking more like a high-stakes game of poker where they went all-in with a pair of twos. As 2023 rolls in, BAT is bracing for revenue growth at the low end of its 3%-5% range, a far cry from the glory days of Big Tobacco. The lesson? Sometimes, what goes up in smoke doesn’t always clear the air.