Shares of both
Reynolds American Inc.
) reached their 52-week highs on Mar 4 after a media report
stated that Reynolds American is considering the takeover of its
rival Lorillard. Shares of Lorillard touched a 52-week high of
$56.85 and eventually closed at $55.26, whereas Reynolds
American's shares attained a high of $56.48 and closed at $56.31
on Mar 4.
On Mar 3, Financial Times reported that Reynolds - the maker
of Camel brand cigarettes has hired
), which operates as a financial advisory and asset management
firm, to look for a possible deal with the third largest U.S.
cigarette company, Lorillard. The report also stated that the
purchase price could be more than $20 billion. However, it is
unclear whether Reynolds plans to bid for the whole company or
only a portion of it.
Reynolds' acquisition of Lorillard, if it materializes, is
expected to consolidate the tobacco industry and bring in growth
opportunities. Lorillard's Newport brand holds the number one
position in the menthol cigarettes market in the U.S. Lorillard
also has a solid footprint in the profitable electronic
cigarettes market with its blu e-Cigs brand (acquired in Apr
2012) and UK-based SKYCIG (acquired in Oct 2013).
Both Reynolds and Lorillard are the biggest tobacco sellers in
the U.S. after peer
Altria Group Inc.
), which makes Marlboro cigarettes. While a combination of these
two companies and their leading brands would change industry
dynamics - possibly creating one of the strongest global tobacco
companies, it might also pose a threat to Altria. However,
Reynolds' largest shareholder, U.K.-based British American
Tobacco (BATS), which owns 42% share in the company, would have
to approve the deal. Regulators could also pose an obstacle to
the deal to protect the U.S. tobacco industry from becoming a
Tobacco companies have been facing declining cigarette volumes
and regulatory restrictions for years. The slowdown in the
tobacco industry, increasing health consciousness among consumers
and significantly higher prices of cigarettes have impacted
volumes. In addition, a rise in the number of people who quit
smoking has also impacted sales. E-cigarettes and menthol
variants are also under scrutiny by health regulators. The
tobacco industry in Europe also received a blow after the
Presidency of the Council of the European Union (EU) and the
Members of European parliament reached a settlement recently on a
draft legislation, which could curb the growth of the
e-cigarettes industry. Any setback on these fronts could hinder
any such tobacco deal.
Currently, Lorillard has a Zacks Rank #3 (Hold), while
Reynolds holds a Zacks Rank #4 (Sell).
LAZARD LTD (LAZ): Free Stock Analysis Report
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REYNOLDS AMER (RAI): Free Stock Analysis
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