The reason reason Big Tobacco is getting even bigger

British American owns 42pc of the shares in Reynolds and has offered to buy the remaining 58pc. Photo / iStock

British American Tobacco - owner of storied cigarette brands such as Lucky Strike and Pall Mall - wants to buy US tobacco giant Reynolds American in a deal that could create the world's largest publicly traded tobacco company.

British American already owns 42 per cent of the shares in Reynolds and has offered to buy out the remaining 58 per cent. The consolidation comes as US companies are dealing with plummeting adult and teen use of tobacco products, and the opportunity to recapture some of that market with new tobacco products like e-cigarettes.

A smaller share of adults smoke cigarettes today than at any point in the past half-century. And because of the economics of addictive goods, tobacco companies have always been reliant on their heaviest users for most of their profits.

But that kind of heavy, pack-or-more-a-day use is becoming more rare too.

CDC data shows that the share of adults smoking 30 or more cigarettes a day has dropped by nearly half in the past 10 years.

Tobacco companies are increasingly dependent on both a shrinking customer base and fewer numbers of loyal consumers.

One small bright spot for the industry has been the rise of e-cigarettes. Both Reynolds American and British American Tobacco have been dipping their toes into the e-cig market.

But e-cigs are still a niche market - CDC data shows that only 3.7 per cent of adults use them regularly, although they do seem to be rapidly growing in popularity among younger smokers.

The research is unclear, however, on how the growth of e-cigarettes could alter Big Tobacco's bottom line.

Some studies have shown that people who use e-cigs reduce their overall tobacco intake, while others have found evidence that for young people, vaping can be a steppingstone to regular cigarette use.

Further muddying the waters is evidence that most teens who use e-cigarettes opt for flavoured products that are free of nicotine. How that might affect their later chances of tobacco use remains unclear.

But the Reynolds American/British American Tobacco merger would allow the companies to consolidate their work on e-cigarettes, potentially leading to new products that are more attractive to consumers. It would also give the new tobacco giant a larger global footprint, enabling it to better tap into foreign markets where tobacco use trends are very different than in the United States.

According to the World Health Organisation, 1.1 billion humans - 14 per cent of the world's population - smoked tobacco last year.