Imperial Tobacco set to be No 3 in US as cigarette giants plan merger
As the number of smokers shrinks, two of the biggest American tobacco companies are in talks to merge. And the deal could see Britain's Imperial Tobacco as No 3 in the US.
Imperial Tobacco: US No 3 ?
The deal between the second-biggest tobacco company in the United States, Reynolds American, and No. 3 Lorillard would unite the makers of Camel and Newport .
They would create" a formidable riva"l to the industry leader the Altria Group, home of Marlboro, said the Wall Street Journal.
The deal involving also British American Tobacco and the Imperial Tobacco Group — could be announced as soon as early next week, said the WSJ, citing people briefed on the matter.
Reynolds American would buy Lorillard to create a company with a combined market value of more than $56 billion.
It would then sell several billion dollars worth of brands and other assets to Imperial, raising the smaller British rival to the No. 3 position in the United States and “potentially assuaging antitrust concerns,” said the Journal
The merger discussions represent the industry’s boldest response yet to a declining, if still profitable, market.
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 and 42.9 percent of the adult population in 1965,.
Lately E-cigarettes have achieves $2.5 billion in US annual sale - small but growing fast.
A merger could give the companies sufficient scale for the technology and the promotion need to make what is now a small niche a bigger market.
“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.
Imperial Tobacco of Britain, owner of Gauloises cigarettes and Montecristo mini cigars, is considering the acquisition of some assets and brands from the two American companies. British American Tobacco, is Reynolds’ largest shareholder with a 42 percent stake, and 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 purchases.
“The discussions are consistent with RAI’s strategy of considering a variety of options to enhance shareholder value,” Reynolds said in a statement.
Thr WSJ said that the US companies will probably have to sell brands or some assets to win approval from antitrust regulators. The combined company would have 42 percent of the tobacco market in the United States.
Still, Reynolds, in its regulatory filings, has described the United States as “a mature market in which overall consumer demand has declined since 1981, and is expected to continue to decline.”
Lorillard agreed to acquire the maker of Blu, an electronic cigarette, two years ago. It purchased Skycig, a British e-cigarette company, in 2013 and introduced the Blu brand to the British market this year.
Reynolds is the maker of Vuse, a competing e-cigarette.
In the first quarter, Lorillard had net sales of $57 million from its e-cigarette business, where it accounts for about 45 percent of all sales in the United States.