RAI to acquire Lorillard, sell brands to Imperial

Reynolds American Inc. (RAI) will acquire Lorillard for $27.4 billion. To help ease antitrust scrutiny that the deal may face, Imperial Tobacco has agreed to purchase the Kool, Salem, Winston, Maverick and Blu Ecigs brands for $7.1 billion, more than tripling its share of the U.S. cigarette market. Imperial will also acquire Lorillard’s manufacturing and R&D facilities in Greensboro, North Carolina and approximately 2,900 employees, including a national sales force.

Reynolds expects to have more than $11 billion in revenue and about $5 billion in operating income after the deal. RAI’s largest shareholder, British American Tobacco, supports the transaction and will maintain its 42 percent ownership in RAI through an investment of approximately $4.7 billion.

In addition, RAI and BAT have agreed in principle to pursue an ongoing technology-sharing initiative for the development and commercialization of “next-generation” tobacco products, including heat-not-burn cigarettes and vapor products.

Susan Cameron will continue as RAI’s president and CEO after completion of the deal. The company will remain headquartered in Winston-Salem. Murray Kessler, chairman, president and CEO of Lorillard, will join RAI’s board after the closing of the transaction.

“Reynolds American and Lorillard have complementary core strengths and the addition of Newport to our operating companies’ existing brand portfolios will enhance our ability to compete in the combustible cigarette and smokeless categories,” said Cameron. “We are also confident in R.J. Reynolds Vapor Co.’s digital vapor cigarette Vuse, which offers superior technology and has received very positive early results in its national rollout. This transaction will provide RAI with additional resources to invest in innovation, R&D and its operating companies’ brands.”

“We are proud of Lorillard’s record of shareholder value creation and operational success, and we view this transaction, which provides a significant premium to our shareholders, as the culmination of our efforts,” said Kessler.

“We are confident in the strategic and financial merits of these transactions,” said Nicandro Durante, CEO of BAT. “Additionally, we find the long-term prospects of this combination compelling, which is why we are making an additional investment in Reynolds American.”