Reynolds American Inc To Buy Rival Lorillard Inc

Reynolds American Inc To Buy Rival Lorillard Inc

All is fair in love and war. Slowdowns can be added to the list. With the slowdown in sales, rivals are turning friends through mergers and acquisitions. The latest to join the lot is Reynolds American Inc (RAI.N) which is all set to purchase rival Lorillard Inc (LO.N) for around $25 billion. This will now lead to the merger of two of the world's largest cigarette makers.

Reynolds which is known for the brands Camel and Pall Mall has offered $68.88 per Lorillard share. This represents a premium of 2.5% to a recent closing of Lorillard. The shares of this company rose by about 37 percent since reports of a possible deal in the month of February. The shares were down 5.5% at $63.50 before the bell closed on 15th July.

The deal is valued at $27.4 billion. This deal provides Reynold with the chance to acquire the leading American menthol cigarette brand Newport. The deal will give the Number 2 and 3 US players a chance to be Number 1 and beat Altria Group Inc (MO.N) wherein sales volume is falling at about 4% per year. With more Americans choosing to quit smoking, things are not looking well for this sector.

However, the bright point is that regardless of the decline, the US is the biggest tobacco market across the globe after China. It is the most profitable field too. Reynolds in turn is set to sell off its KOOL, Winston, Saelm and Lorillard's Maverick and blu eCigs brands and assets to British Group Imperial Tobacco Group (IMT.L) for a whopping $7.1 billion to address anti-trust issues.

British American Tobacco/BATS.L which is Reynolds American's biggest shareholder will purchase more shares to maintain a 42% ownership in Reynolds via a $4.7 billion investment.

As the smoke clears and the US cigarette market looks to bear the onslaught of the latest move towards healthy living, the nation's second largest company is looking to capitalise on innovation through partnership.

The move to sell some of their smaller brands is to assuage the concerns of the regulators. Some analysts were taken by surprise over the sale of blu-eCigs as they reckoned this was one of the reasons why Reynolds evinced interest in Lorillard.

Reynolds president and CEO Susan Cameron said of this deal that the firm now plans to tap the e-cigarette market with a new product VUSE that rolled out nationally. VUSE offers superior technology and informed investors that Reynolds is set out to rev up the bran's production.

Anti-trust reasons continue to haunt the firms as Lorillard's stock falls, according to analysts quoted by Reuters. With Lorillard's CEO Murray Kessler joining Reynolds board following the completion of the deal, the consolidation will increase the ability of Reynolds to take on the stakes and fight to gain market share.