Reynolds American Inc.
) has finally confirmed its intention to take over
) in an attempt to enhance its shareholder's value.
There has been a buzz about a possible merger between the two
tobacco biggies for quite some time. Per media reports, Reynolds
has been exploring options to acquire its rival Lorillard since Mar
2014. Per the reports, Reynolds - the maker of Camel brand
cigarettes - hired
), an investment bank, to look for a possible deal with the third
largest U.S. cigarette maker, Lorillard. The report further stated
that the purchase price could be more than $20 billion.
The possible takeover will also require the consent of the
U.K.-based British American Tobacco (BAT), which owns a roughly 42%
stake in Reynolds, because the agreement might dilute its
interests. BAT will have to subscribe for additional Reynolds
shares, if the deal proceeds.
Another tobacco major, The Imperial Tobacco Group, is expected
to buy some shares which Reynolds will have to shed to satisfy
The acquisition, if materialized, is expected to consolidate the
tobacco industry and increase growth opportunities for Reynolds.
The merger will bring brands like Newport and Camel under one
banner. Reynolds is geared to cement its position in the
e-cigarette category with the nationwide distribution of its
flagship e-cigarette brand Vuse.
Moreover, Lorillard's solid presence in the profitable
e-cigarette market with its blu eCigs (acquired in Apr 2012) and
the U.K.-based SKYCIG (acquired in Oct 2013) brands will help
Reynolds gain share in the e-cigarette category. However, the
combined entity might pose a threat to peer
Altria Group Inc.
), which manufactures Marlboro cigarettes and owns more than 40%
market share in the U.S.
While Lorillard carries a Zacks Rank #2 (Buy), Reynolds
currently carries a Zacks Rank #3 (Hold).
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REYNOLDS AMER (RAI): Free Stock Analysis Report
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