By Dow Jones Business News,
July 15, 2014, 07:28:00 AM EDT
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 firstname.lastname@example.org
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