The two companies have a combined market capitalisation of $56bn. British American Tobacco holds a 42 per cent stake in Reynolds and Imperial Tobacco has announced an intention to buy assets from the new group.
It is understood that the parties have agreed on a price, among other details, and are deciding which premises and brands to jettison in order to alleviate anti-trust concerns.
Reynolds' American brands include such industry staples as Pall Mall and Camel. Lorillard owns other big names such as Maverick and Kent.
The Financial Times quotes Bonnie Herzog, analyst at Wells Fargo, as calling the deal a positive move for the tobacco industry. She said the merger "could be just the beginning of future transactions with e-cigs/vapor being the underlying catalyst”.