RAI agrees US$27.4b deal for Lorillard
Print Edition
US-BASED tobacco giant Reynolds American will buy Lorillard for US$27.4 billion and sell cigarette brands including Salem and Winston to British firm Imperial Tobacco for US$7.1 billion, the companies said yesterday.
The deal combines Reynolds American Inc, the parent company of RJ Reynolds, maker of Camel and Pall Mall cigarettes, and Lorillard, whose Newport cigarette is the best-selling menthol brand and the second-best selling cigarette in the US.
The combination of Reynolds American, the second-largest US tobacco company and number-three Lorillard challenges market leader Altria, maker of Marlboro cigarettes.
RAI also announced British firm Imperial Tobacco will purchase its cigarette brands, including menthol cigarettes Kool and Salem, and Winston, and other assets for US$7.1 billion in cash.
“The addition of these brands to Imperial’s US operations will more than triple its share of the US cigarette market, position it for long-term success in traditional tobacco products and the growing e-cigarette category, and elevate it to the status of a major US competitor for the first time,” RAI said.
British American Tobacco, RAI’s largest shareholder, backed the deal and will maintain its 42 percent stake through an investment of about US$4.7 billion.
The RAI-Lorillard combined company will have more than US$11 billion in revenues and about US$5 billion in operating income, the firms said in a joint statement.
Under the terms of the cash-and-stock agreement, Lorillard shareholders will receive, for each Lorillard share, US$50.50 in cash and 0.2909 of a share in RAI stock at the closing of the transaction.
That represents a premium of 40.4 percent to RAI’s stock price on February 28, before initial media speculation on a possible tie-up.
The US$27.4 billion deal includes assumption of net debt.
“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,” said Susan Cameron, RAI’s president and chief executive.
RAI said it expects to book post-tax cash proceeds of about US$4.4 billion from the sale of assets to Imperial Tobacco.
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