Reynolds American Inc. agreed to acquire Lorillard Inc. in a
cash-and-stock deal worth about $25 billion, the companies said
Tuesday.
Under the terms, Lorillard shareholders will receive $50.50 in
cash and 0.29 Reynolds shares in exchange for each Lorillard share,
a value of $68.88 per share. Including the assumption of debt, the
deal is valued at $27.4 billion, the companies said.
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.
Reynolds expects to have more than $11 billion in revenue and
about $5 billion in operating income after the deal.
Additionally, Reynolds American said it reached a deal to sell
the Kool, Salem, Winston, Maverick and Blu eCigs brands and other
assets to Imperial Tobacco Group PLC for $7.1 billion in cash.
Reynolds said it expects to receive $4.4 billion in proceeds after
taxes.
Selling the brands is aimed at easing the antitrust scrutiny
that the deal may face. In addition, the U.S. Food and Drug
Administration also is 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.
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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires