Reynolds American Inc and Lorillard in Acquisition Talks
Reynolds American Inc. is drawing plans to acuire Lorillard Tobacco Company, the companies confirmed in two separate statements Friday.
"Reynolds American (NYSE:RAI) confirms that it is in discussions with Lorillard regarding a possible acquisition of Lorillard. The discussions are consistent with RAI's strategy of considering a variety of options to enhance shareholder value," Reynold's statement read.
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"Lorillard, Inc. (NYSE: LO) today confirmed that Lorillard and Reynolds American Inc. (NYSE: RAI) ("RAI") are engaged in discussions regarding RAI's potential acquisition of Lorillard. In connection with that transaction, RAI and Lorillard are in discussions with Imperial Tobacco Group PLC (LON: IMT) regarding the potential sale of certain assets and brands owned by RAI and Lorillard to Imperial," according to Lorillard's statement.
The company declined to comment further on the deal and also asserted that the statement was not to be treated as an assurance that the deal would go through.
Both Reynolds and Lorillard are two major players in the U.S. tobacco market. The former is worth $33 billion while the latter's value is estimated at $23 billion. A combination of two of the strongest brands would either create a huge brand or bolster Reynolds to a top position, according to The Wall Street Journal.
"This confirms what we've known, that the U.S. cigarette industry is heating up," Chris Wickham, an analyst at Oriel Securities told Bloomberg in a telephone interview.
"This is the first stage for some big battle lines that are being drawn."
But the deal does have its risk. According to the Journal, the U.S. Food and Drug Administration is soon planning on imposing a ban on menthol cigarettes, a product that makes up 80 percent of Lorillard's revenue.
The deal would also pose a threat to the tobacco market as Reynolds and Lorillard would together won 50 percent of the market share thus imposing monopoly.