Reynolds American Inc., US cigarette maker, is in discussions to buy rival Lorillard Inc., in a deal worth billions of dollars that would redefine one of the biggest and most lucrative tobacco markets in the world, the firms announced on Friday.
An agreement would also touch on acquisition of some brands by UK’s Imperial Tobacco Group to take care possible antitrust issues and the purchase of more stake in Reynolds by British American Tobacco, the company’s largest investor.
In statement that confirmed what Reuters had already learnt from sources familiar with the developments, Reynolds, the second-largest cigar company in the US with brands such as Camel and Pall Mall, said the negotiations were in line with its strategy of evaluating options that would help bolster shareholder value.
If Reynolds goes on to buy Lorillard, which had a stock valuation of $22.9 billion yesterday, the company would acquire the top US menthol cigarette Newport and its market leading e-cigar blu.
Analysts believe the merger could help save $500 million yearly in costs, making it easier for the second-and third-largest cigar makers in the US to compete with Marlboro manufacturer and leading Altria Group Inc. in a market experiencing a sales volume reduction of 4% every year as more Americans stop smoking.
US is still the world-biggest tobacco market after China and the most lucrative.
“This transaction in our view will be very positive for the global tobacco industry and could be the just the beginning of future transactions with e-cigs/vapor being the underlying catalyst,” the New York Times quotes a note by Wells Fargo analysts.
Stocks of Reynolds plunged 2%, while Lorillard shares ascended 3.5% in midday trading. Media reports surfaced earlier this year suggesting Reynolds and Lorillard were considering merging. However, the firms did not reveal financial terms for the possible deal.
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