Reynolds American Inc. and Lorillard Inc., the US tobacco companies that agreed to a $25 billion merger last month, are providing additional information to regulators, a sign the deal faces intensifying scrutiny.
Each company got a so-called second request from the Federal Trade Commission, according to a statement from the cigarette makers today. Reynolds and Lorillard said they would cooperate with the antitrust agency and still expect the transaction to be completed in the first half of next year.
Reynolds’s acquisition of Lorillard, announced on 15 July, would leave the 400-year-old US tobacco industry with two competitors controlling 90 per cent of the market. The companies attempted to soothe antitrust concerns by agreeing to sell brands such as Kool and Blu e-cigarettes for $7.1 billion to Imperial Tobacco Group Plc, a British company that’s pushing deeper into the US industry. Altria Group Inc. remains the market leader.
David Balto, a Washington attorney and former policy director for the FTC, said last month that the deal would be vigorously reviewed. Selling off the minor brands to Imperial may not be enough, he said.
Shrinking Pie
Decades of anti-tobacco health campaigns have hurt cigarette demand and put pressure on the industry to consolidate. Acquiring Lorillard, the US industry’s third-largest competitor, would help Reynolds cope with the slowdown and give it the Newport menthol line, which is popular in urban areas.
Reynolds, the maker of Camel and Pall Mall cigarettes, agreed to pay cash and stock valuing Lorillard at $68.88 a share. British American Tobacco Plc plans to fund $4.7 billion of the transaction, letting it maintain a 42 per cent stake in Reynolds.
The combined company will account for almost 33 per cent of the US industry, Reynolds said last month. That leaves the US with two competitors - Reynolds and Altria - selling nine out of every 10 cigarettes. Imperial said its market share will more than triple to 9.5 per cent from 2.5 per cent.
Despite shrinking industry sales, the companies have remained profitable, with Altria, Reynolds and Lorillard all boosting net income last year.
Bloomberg News, edited by ESM
