LONDON — Reynolds American and Lorillard confirmed Friday that they were in discussions about a multibillion-dollar deal that would unite two of the biggest names in the tobacco industry in the United States.
The deal, if consummated, would create a company worth an estimated $56 billion and unite some of the best-selling brands in cigarettes, including Camel and Newport. Both companies have recently made big pushes into e-cigarettes.
“This transaction in our view will be very positive for the global tobacco industry and could be just the beginning of future transactions with e-cigs/vapor being the underlying catalyst,” Wells Fargo analysts wrote in a note.
The announcement came a few hours after Imperial Tobacco said it was in discussions to buy assets from Reynolds and Lorillard.
Reynolds said Friday that it was obligated to disclose the discussions under British takeover rules. British American Tobacco is Reynolds’ largest shareholder with a 42 percent stake and is participating in the discussions.
“The discussions are consistent with RAI’s strategy of considering a variety of options to enhance shareholder value,” Reynolds said in a statement.
The Financial Times, citing unidentified sources, reported Friday that Reynolds American and Lorillard were finalizing a potential merger.
Lorillard has a total enterprise value of $24.6 billion, according to Standard & Poor’s Capital IQ.
Reynolds said that British American Tobacco would seek to maintain a 42 percent stake in the combined company.
The companies did not disclose financial terms for the potential merger.
The merger, if finalized, would combine the second- and third-largest tobacco producers in the United States and significantly reshape the tobacco business.
The Altria Group, the owner of Philip Morris USA, the maker of Marlboro and Virginia Slims cigarettes, is the largest tobacco company in the United States. Philip Morris USA is responsible for half of cigarette sales in the United States.
But given the influence on the market that a combined Lorillard-Reynolds could potentially exert, the companies will probably have to sell brands or some assets to win approval from antitrust regulators.
Earlier Friday, Imperial Tobacco, a British company, said that it was evaluating a possible acquisition of assets and brands owned by the two U.S. companies. Imperial, the maker of Davidoff and Gauloises cigarettes and Montecristo mini-cigars, considers the United States one of its crucial growth markets, but is currently a small player.
The Reynolds-Lorillard discussions come as the number of Americans who smoke has declined substantially in recent years as cities and states have banned smoking in many public places, including bars and restaurants, over concerns about the health effects of secondhand smoke.
About 42 million people in the United States, or about 18.1 percent of the adult population, smoke cigarettes, according to the Centers for Disease Control and Prevention. That compares with about 20.9 percent of the adult population nearly a decade ago and 42.9 percent of the adult population in 1965, according to the centers.
Reynolds, in its regulatory filings, has described the United States as “a mature market in which overall consumer demand has declined since 1981, and is expected to continue to decline.”
Founded in 1760, Lorillard, based in Greensboro, N.C., is the oldest continuously operating tobacco company in the United States. Its brands include Newport, Kent, True, Maverick and Old Gold.
Reynolds, based in Winston-Salem, N.C., is the parent company of R.J. Reynolds, the maker of Pall Mall and Camel cigarettes; Santa Fe Natural Tobacco Co., the maker of American Spirit cigarettes; and American Snuff Co., the maker of Kodiak smokeless tobacco. Reynolds posted net sales of $8.3 billion in 2013.United States - North America - North Carolina - Vermont - Newport - Parent Co - Philip Morris International Inc - Altria Group Inc - Reynolds American Inc