The Low Post News

Lorillard and Reynolds American Holding Merger Talks

Lorillard and Reynolds American are currently holding advance negotiations to merge in a union that would reshape the tobacco landscape in the U.S. dramatically, creating a No. 2 powerful challenger to Altria Group, Inc the industry leader, said one source close to the matter.

The possible takeover would bring together the leading cigarette brands of Reynolds such as Pall Mall and Camel with Newport from Lorillard. Newport is the top selling menthol cigarette. This would take place at a time when the tobacco industry in the U.S., which is $100 billion, is wrestling with plummeting sales.

The merger would also give Reynolds, based in Winston-Salem, North Carolina a commanding position in the electronic cigarettes market that is quickly developing.

The e-cigarette is a heating device that is battery powered that turns liquid that is nicotine laced into vapor, and is one alternative to the traditional cigarette.

The blu e-cigarette from Lorillard has a market share of close to 50% in convenience and gasoline stores in the U.S.

Reynolds was slower to get involved in the e-cigarette market, which could pass the $2 billion mark in sales in the U.S. in 2014.

Reynolds is planning to start a rollout nationally next month of Vuse its e-cigarette, after launching it in Utah and Colorado over the past few months.

A merger would also create ripples internationally. British American Tobacco based in the UK is the maker of Dunhill and Kent cigarettes. BAT owns 42% of Reynolds and would have a major say in whether the deal goes through. A standstill agreement of 10 years between Reynolds and BAT expires this July.

Talk of the potential deal involving these three companies has passed through the financial markets and at times surfaced in different media outlets for a number of months.

One media outlet reported on Wednesday that there were active negotiations taking place for Reynolds to buy out Lorillard in a transaction with BAT where the UK based company would take a big role.

Reynolds, BAT and Lorillard decline to make a comment on the talks.

Shares of Reynolds increased 4.4% on Wednesday, while Lorillard’s were 10% higher.

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