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Reynolds to Divest $5B Assets: Another Big Tobacco M&A?

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Reynolds American Inc. 's RAI shares rose 2.1% in after-market trading on Sep 24 following rumors that the company is in talks with leading Japanese tobacco maker Japan Tobacco Inc. for the sale of some assets.

Per media reports, the Japanese firm is geared to expand into international markets following share losses in the domestic market. The company reportedly plans to take over assets worth $5.0 billion from Reynolds, including some share of the Natural American Spirit tobacco brand.

Tobacco intake in Japan is falling owing to lower smoking rates and a reduction in population. The company is therefore focusing on acquisitions in the international market to maintain its market share. The recent takeover rumors closely follow the acquisition of leading U.S. cigarette maker, Logic Technology Development LLC, by Japan Tobacco in Jul 2015.

Mergers and acquisitions (M&A) have been on the rise since the beginning of this year, with deals crossing the $3 trillion mark in September, according to data compiled by Thomson Reuters. Reynolds recently completed the takeover of its rival Lorillard Inc. bringing brands like Camel and Newport under the same banner.

Meanwhile, Reynolds appears to be in troubled waters due to the growing anti-tobacco campaigns in the U.S. Also, the Zacks Rank #3 (Hold) stock recently came under the FDA scanner for several reasons. Last month, the regulatory agency reportedly warned three tobacco companies - Reynolds American; Imperial Tobacco PLC, owner of Winston; and Sherman's 1400 Broadway N.Y.C. Ltd., which owns Nat Sherman cigarettes - for using terms like 'additive free' and 'natural' on cigarette packages without the necessary permissions.

Such strict laws imposed by the FDA will pose a significant problem for tobacco makers, like Philip Morris International Inc. PM , Reynolds and Altria Group Inc. MO and Vector Group Ltd. VGR that are already reeling from the effect of anti-smoking campaigns worldwide.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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