Reynolds American buying tobacco rival Lorillard for $27.4 billion

By Daniel S Levine,

With the American cigarette market shrinking, two rivals of the tobacco industry are combining forces. Reynolds American has agreed to buy Lorillard for $24.7 billion, the company announced Tuesday.

Reynolds American’s brands include Camel, Pall Mall, Natural American Spirit, Grizzly and VUSE. According to the announcement, Lorillard’s Newport will join Reynolds’ stable. Reynolds will pay $68.88 in cash and stock and will also assume Lorillard’s debt.

However, as the NY Times points out, the Imperial Tobacco Group is stepping in to pay $7.1 billion for the Kool, Salem and Winston brands, plus Blu e-cigarettes. British American Tobacco is also spending $4.7 billion in new shares of Reynolds American, which it already owns 42 percent of.

Imperial also acquired a Lorillard manufacturing plant in South Carolina.

“Reynolds American and Lorillard have complementary core strengths and the addition of Newport to our operating companies’ existing key brand portfolios – including flagship brands Camel, Pall Mall, Natural American Spirit and Grizzly – will enhance our ability to compete in the combustible cigarette and smokeless categories,” Reynolds CEO Susan Cameron said in a statement.

The American tobacco industry is still trying to get acclimated to the smaller market and the new deal will help Reynolds remain competitive with Altria Group and its Marlboro brand.

According to USA Today, while the overall deal was expected, some analysts may be surprised that Reynolds sold the Blu e-cigarettes brand. Analysts thought that Blu might have been the main reason why Reynolds made a play for Lorillard in the first place. Instead, it looks like Reynolds is hoping to make a bigger push for its own VUSE brand.



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