Reynolds and BAT also agreed to share next-generation tobacco technology, including heat-not-burn cigarettes and vapor products. Imperial will acquire Lorillard’s manufacturing and research facilities in Greensboro and about 2,900 employees, including a national sales force. Reynolds will keep its Vuse line of e-cigarettes.
Lorillard’s biggest product, Newport, will give Reynolds fresh ammunition against Altria, whose brands account for more than half of the U.S. retail cigarette industry. Altria’s Marlboro by itself has market share in the U.S. of about 44 percent, according to the company’s website.
Lazard served as lead financial adviser to Reynolds, which also consulted with JPMorgan Chase & Co. Centerview Partners and Barclays Plc advised Lorillard. Jones Day LP provided legal counsel toReynolds, while Simpson Thacher & Bartlett LLP served as Lorillard’s legal adviser.
Months of talks
Reynolds, Lorillard and London-based BAT have been in talks since last fall to reach an agreement that would satisfy all three parties, people familiar with the matter have said. They made a tentative deadline of July to reach a deal because of a standstill agreement by BAT not to raise its stake in Reynoldswithout the approval of Reynolds’s board until this month.
BAT’s agreement keeping it from increasing its stake in Reynolds dates back to the merger of R.J.Reynolds Tobacco Holdings Inc. with Brown & Williamson Tobacco. The Federal Trade Commission is likely to take a hard look at the latest proposed transaction, said David Balto, a Washington attorney and former policy director for the FTC who litigated BAT’s merger with Reynolds in 2004.
The FTC allowed that deal to go through because Brown & Williamson was losing market share and Lorillard was still around as a viable competitor, according to a brief released by the FTC. The market is more consolidated now, and this deal will face serious scrutiny, Balto said.
“The FTC will be very concerned about competition in this market,” he said in a phone interview. “The FTC will want to make sure some level of competition is restored.”
There is a chance that just selling off the minor brands to Imperial won’t be enough, he said.
“There is a difference between these brands being in the hands of a powerful company like Lorillard and being owned by an upstart like Imperial,” Balto said.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.