British American Tobacco In E-Cigarettes Deal

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Britain's biggest tobacco company is poised to swoop on a pioneer of some of the world's biggest-selling electric cigarette brands, a vital new frontier in an industry buffeted by growing restrictions on its sales and marketing practices.

I have learned that British American Tobacco (LSE: BATS.L - news) (BAT) will announce the acquisition of CN Creative, a Manchester-based company which specialises in the development and production of non-combustible cigarettes.

The takeover is believed to be costing BAT tens of millions of pounds, but insiders say the purchase will be of potentially far-reaching strategic importance to the group.

I understand that the deal will involve CN being acquired by BAT rather than Nicoventures, a BAT subsidiary which was set up last year to focus on what it called "the development and commercialisation of innovative regulatory approved nicotine products".

Talks between BAT and CN Creative are understood to have been taking place for several months.

CN is one of a small number of companies to have benefited from the Government's £200m Future Technologies Fund, which was set up by the last Labour administration to give British companies a stronger foothold in life sciences.

Among the Manchester-based company's products is Intellicig, which it claims is the world's best e-cigarette, selling in 26 countries around the world, including in the UK.

CN Creative also manufactures ECOpure, a nicotine-based product, and is developing a new generation of products under the name Nicadex that the company says "will exist under the medicines regulatory framework as a smoking cessation device/drug".

CN Creative is chaired by Dale Pfost, a partner at Advent Life Sciences, one of the company's investors. The company's founders are likely to make a substantial multimillion pound sum from the takeover by BAT.

The tobacco industry's biggest players are seeking to develop credible products which provide alternatives to smoking at a time when pressure on major companies is unrelenting.

New European Union proposals to put graphic images warning of the dangers of smoking have faced intense lobbying from the industry but are widely-viewed as inevitable.

BAT is run by Nicandro Durante, an Italian, who replaced long-serving chief executive Paul Adams two years ago.

The company declined to comment on the CN Creative deal.