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Reynolds-Lorillard Tobacco Deal Under FTC Review

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Federal regulators are gearing up for Reynolds American Inc.’s $25 billion takeover of Lorillard Inc. by enforcing an antitrust review of the deal.

Reynolds, the maker of Camel cigarettes, and Lorillard, producers of rival Newport Corp., are set to join forces to become America’s second-most powerful tobacco company. Conjoined, Reynolds-Lorillard would give Altria Group Inc., which owns Marlboro’s Philip Morris USA, significant competition by also creating a new entity in the market — the U.K.’s Imperial Tobacco Group, which would triple its share by purchasing a number of the companies’ other brands for $7.1 billion, the Associated Press reported.

This is all contingent upon the Federal Trade Commission’s approval, involving a review over of how the deal would ultimately affect competition and cigarette prices that have already grown about 5 percent per year over the last decade.

The new company will still be based in Winston-Salem, North Carolina and is projected to earn over $11 billion in revenue while claiming a roughly 34 percent share of the U.S. retail cigarette market. However, Lorillard’s Blu e-cig brand will be sold off as more focus would go toward Reynolds’ rechargeable Vuse e-cigarette brand.

CLSA analyst Michael Lavery believes there’s a 30 percent chance the deal will be approved. Others contend that there’s a 40 percent chance it’ll be blocked.

The process is inherently unpredictable (and possibly political), but we believe the guidelines point to real hurdles to approval,” Lavery wrote in an investor note.

The deal is expected to close in the first half of 2015, and according to an analysis of similar regulations in the Antitrust Law Journal, the review could take up to 170 days to be completed.

Are you concerned about tobacco companies merging? Let us know what you think in the comments section below.

Sources

Malika Lipscomb

Malika Lipscomb

Politics, Business and Economy news writer at NewsLab.

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