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Reynolds American to buy cigarette rival Lorillard for $27.4 billion

Reynolds' purchase of Lorillard would combine the second- and third-largest American tobacco makers

Cigarette giant Reynolds American Inc. agreed to purchase rival Lorillard Inc. for $27.4 billion, gobbling up additional market share as Americans smoke less.

The deal, announced Tuesday, combines the second- and third-largest American tobacco companies, creating a cigarette behemoth with a projected $11-billion-plus in annual revenue.  The cash, stock and debt transaction is likely to face scrutiny from regulators, analysts said.

An earlier version of this post said Imperial Tobacco Group was buying Reynolds’ Maverick and Blu eCigs brands. Those brands belong to Lorillard, and Lorillard is selling them. The post also misidentified Blu eCigs as Blue eCigs.

Britain’s Imperial Tobacco Group is also buying the companies’ Kool, Salem, Winston, Maverick and Blu eCigs brands, along with other assets, for $7.1 billion. And British American Tobacco will invest $4.7 billion in the Reynolds-Lorillard deal to maintain its 42% stake in Reynolds.

If the deal closes, the combination of Reynolds, of Winston-Salem, N.C., and Lorillard, of Greensboro, N.C., would be a strong challenger to Altria, the nation's largest tobacco products maker and parent of Philip Morris. 

Reynolds, the nation's second-largest tobacco firm, adds Lorillard's Newport brand to its lineup of Camel and Pall Mall cigarettes. Newport is the nation’s most popular menthol cigarette.

“The addition of Newport … will enhance our ability to compete in the combustible cigarette and smokeless categories,” Reynolds Chief Executive Susan Cameron said in a statement.

The combination could prove fruitful as Americans quit or fail to take up smoking, choices driven by health, high taxes and anti-smoking campaigns. Cigarette sales in the U.S. fell 4% in 2012, and is projected to keep falling, according to market researcher Euromonitor International.

Reynolds will also keep Vuse, its offering in the increasingly popular electronic cigarette market.

The deal is expected to close in the first half of 2015.  Shares of both companies were down in late-morning trading.
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