Newspaper article International New York Times

Reynolds and Lorillard in Talks to Join Forces ; Merger of Tobacco Giants Would Create Challenger to Industry Leader Altria

Newspaper article International New York Times

Reynolds and Lorillard in Talks to Join Forces ; Merger of Tobacco Giants Would Create Challenger to Industry Leader Altria

Article excerpt

Confronting a shrinking market of smokers, a deal would unite some of the best-selling brands in cigarettes, including Camel and Newport.

Two of the biggest American tobacco companies said on Friday that they were in talks to merge and create a $56 billion colossus, a move intended to cut costs and shore up profits as the number of smokers shrinks.

A deal between the second-biggest tobacco company in the United States, Reynolds American, and Lorillard, the No.3, would unite the makers of the Camel and Newport brands and create a formidable rival to the industry leader, the Altria Group, home of Marlboro.

A merger would also have ripple effects in the global market. Imperial Tobacco of Britain, maker of Gauloises cigarettes and Montecristo mini cigars, is considering the acquisition of some assets and brands from the two American companies.

And British American Tobacco, which is Reynolds' largest shareholder, with a 42 percent stake, is backing a merger. Reynolds said that British American Tobacco would seek to maintain a 42 percent stake in the combined company.

The announcements on Friday came after Imperial Tobacco said it was in discussions on potential asset purchases.

The merger discussions represent the industry's boldest response yet to a market that is diminishing, if still profitable. Declining smoking rates and aggressive public health campaigns intended to curb smoking have cut into sales in the United States.

About 42 million people in the United States, or about 18.1 percent of the adult population, smoke cigarettes, according to the Centers for Disease Control and Prevention. That compares with about 20.9 percent of the adult population nearly a decade ago and 42.9 percent of the adult population in 1965, according to the C.D.C.

Lately, the industry has seen opportunity in the new business of e-cigarettes. While e-cigarette sales are a tiny fraction of tobacco sales, both Reynolds and Lorillard have recently made big pushes into the market. A merger could give the companies sufficient scale to develop the technology and carry out the promotion needed to make what is now a niche market into something much bigger.

"This transaction in our view will be very positive for the global tobacco industry and could be the just the beginning of future transactions with e-cigs/vapor being the underlying catalyst," Wells Fargo analysts wrote in a note. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.