FTC Clears Reynolds-Lorillard Deal

(RTTNews) - Reynolds American Inc. (RAI) and Lorillard, Inc. (LO) said Tuesday that the U.S. Federal Trade Commission has voted to accept a proposed consent agreement, authorizing Reynolds American to close its proposed $27.4 billion acquisition of Lorillard.

Reynolds and Lorillard have agreed to divest four cigarette brands - Winston, Kool, Salem, and Maverick - to London-based Imperial Tobacco Group to settle FTC charges that their proposed merger would likely be anticompetitive.

The FTC also requires Reynolds to divest to Imperial the Lorillard manufacturing facilities in Greensboro, North Carolina, and provide Imperial with the opportunity to hire most of the existing Lorillard management, staff, and salesforce.

The closing of the acquisition and related transactions remains subject to certain other conditions, including approval from the federal district court overseeing United States v. Philip Morris USA Inc., et al case.

The companies said they have requested the court to rule expeditiously, and that they are confident that the acquisition and related transactions will close by the end of June 2015.

Reynolds in July 2014 agreed to buy smaller rival Lorillard and its popular Newport menthol brand in a cash and stock deal valued at $27.4 billion.

The combined company will have a strong, balanced portfolio of iconic brands across key categories with projected revenues of more than $11 billion and about $5 billion in operating income.

The proposed merger of Reynolds American, the second largest U.S. tobacco company, and Lorillard, the third largest, would create a bigger rival to industry leader Altria Group, Inc. (MO), which boasts of a 47% share of the U.S. tobacco market. The merged company will hold an estimated 34% market share.

The deal would combine Reynolds cigarette brands such as Camel, Pall Mall, Natural American Spirit, Kool, Grizzly smokeless tobacco and VUSE e-cigarettes, with Lorillard's top-selling Newport menthol cigarettes and e-cigarettes.

It would enable Reynolds to gain a commanding position in the fast-growing market for e-cigarettes that represents a growing alternative to traditional cigarettes. Reynolds already makes and markets VUSE e-cigarettes, a highly differentiated vapor product.

Greensboro, North Carolina-based Lorillard, through its other subsidiaries, is also a leading global electronic cigarette company, marketed under the blu eCigs and SKYCIG brands.

The global tobacco market is now seeing the rapid growth of electronic cigarettes and lower sales volumes of traditional cigarettes. The popularity of e-cigarettes have soared in recent times as tobacco products are highly regulated and heavily taxed. Further, cigarette smoking has been forbidden in public places.

Reynolds American shares closed Tuesday's regular trading session at $75.43, up 36 cents, while Lorillard shares closed at $72.12, up 11 cents.