Reynolds American, the second largest US tobacco firm, yesterday announced it would buy the number three US tobacco firm, Lorillard, in a $27.4bn (£16bn) deal.
The deal, which gives Reynolds control of Lorillard’s Newport menthol cigarettes, strengthens the combined company’s hand and sets up a battle with Marlboro-maker Altria Group for the e-cigarette market.
FTSE 100-listed British American Tobacco (BAT) entered the deal with $4.7bn to maintain its 42 per cent stake in the larger Reynolds group.
“We believe this is a good investment for our shareholders. We fully support the proposed deal which maintains our position in what will be a larger, more competitive business,” said BAT chief Nicandro Durante, adding that BAT’s £1.5bn share buyback scheme would be suspended from 30 July.
Imperial Tobacco, the world’s fourth largest tobacco firm, also took part in the deal, paying $7.1bn for a number of cigarette brands from the group, including Winston, Maverick and the e-cigarette brand blu, in a move expected to ease antitrust concerns.
“We regard this acquisition as a positive for Imperial, which we believe lagged competitors in establishing a footprint in e-cigs, but we believe Blu was the sweetener to persuade Imperial to take the cigarette brands Rey nolds wanted to dispose of rather than one of its marquee brands, Camel or Pall Mall,” said Morningstar analyst Philip Gorham. Imperial’s shares fell 3.69 per cent to 2,638p and BAT fell 1.77 per cent to 3,532p.