By Michael Calia
Reynolds American Inc. agreed to acquire Lorillard Inc. in a
cash-and-stock transaction currently valued at $68.88 per Lorillard
share, or a total of $27.4 billion.
The deal combines Reynolds' Camel and Pall Mall cigarettes with
Lorillard's popular Newport menthol brand to create a more powerful
No. 2 to U.S. industry leader Altria Inc., maker of Marlboro.
Reynolds and Lorillard have a combined stock-market
capitalization of more than $50 billion.
The potential tie-up faces significant risks, including tough
antitrust scrutiny. The U.S. Food and Drug Administration is also
weighing a possible crackdown on menthol cigarettes, which fuel
more than 80% of Lorillard's sales, after the agency banned all
other cigarette flavors in 2009.
A deal would give Reynolds a jump on Altria in electronic
cigarettes, the small but fast-growing alternative to traditional
smokes. Both companies had been slow to enter that market, only
beginning to roll out their brands nationally this summer. As part
of a merger, Reynolds would get Lorillard's Blu e-cigarette brand,
which has more than a 40% market share in U.S. convenience
stores.
The potential combination comes as tobacco majors try to
increase scale and cut costs amid a yearslong decline in U.S.
cigarette consumption, including an estimated 4% contraction last
year, even as profits remain robust. Two rare pockets of growth in
the $100 billion U.S. tobacco market are e-cigarettes and menthol
cigarettes. Lorillard is the market leader in both.
Write to Michael Calia at michael.calia@wsj.com
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