Tobacco shake-up likely as merger talks begin
US cigarette maker Reynolds American is in talks to acquire rival Lorillard in a multi-billion dollar deal that would include the sale of some brands to Britain's Imperial Tobacco, the companies said.
Reynolds, the second biggest player in the United States with brands including Camel and Pall Mall, said the talks were consistent with its strategy of weighing options that would help boost shareholder value.
Buying Lorillard, which has a stock market value of $22.9bn, would give Reynolds the leading US menthol cigarette, Newport, and its leading e-cigarette, blu.
It would also give it added scale to compete with Marlboro maker Altria, in a market that is shrinking as more Americans quit smoking but which remains one of the biggest and most profitable tobacco markets in the world.
"Reynolds is getting both a fantastic brand in Newport and strong intellectual property in the e-cig category," said analyst Philip Gorham at research firm Morningstar. "It's a good deal strategically, we just need to know what they're paying."
At banking group Wells Fargo, analyst Bonnie Herzog estimated Reynolds would pay a premium of about 20pc to Lorillard's latest closing price of $63.09 per share, which would value the company at $27.2bn.
Cigarette sales volumes are declining in many mature markets due to rising health consciousness and weak economies. Yet their high price places them among the most profitable consumer goods.