By Tripp Mickle
Reynolds American Inc. on Wednesday won shareholder approval for
its $25 billion acquisition of Lorillard Inc.
Shareholders of Reynolds, Lorillard and Imperial Tobacco Group
TLC voted in favor of the deal, which still needs regulatory
approval. The Federal Trade Commission is expected to weigh in
later this quarter.
Investors have expressed skepticism the FTC will approve the
deal. Lorillard's stock opened Wednesday at $65.80, about 7% below
the deal's closing price. Two analysts said the market gives the
deal about a 60% chance of closing.
The complicated, three-way transaction on Wednesday received
approval from Reynolds and Lorillard shareholders for Reynolds's
$25 billion acquisition of Lorillard. It also received approval
from shareholders of Imperial for the $7 billion acquisition of
five brands, which Reynolds and Lorillard are selling to satisfy
antitrust authorities.
Acquiring the third largest tobacco company, Lorillard, will
make Reynolds a more formidable No. 2 to Marlboro maker and market
leader Altria Group Inc. Imperial will replace Lorillard as the No.
3 player with a 10% market share.
Reynolds expects to have more than $11 billion in revenue and
about $5 billion in operating income after the Lorillard deal.
Industry analysts estimate Reynolds market share will increase to
34% from 24%. Altria has an estimated 47% market share.
Reynolds and Lorillard executives are optimistic regulators will
approve the deal. They have argued that Imperial will be a stronger
No. 3 player than the one created during industry consolidation in
2004. Brown & Williamson Tobacco Corp. and R.J. Reynolds
Tobacco Co. merged to become the No. 2 tobacco company and
Lorillard moved up a notch to become the No. 3 player, with about
8% market share. Lorillard increased its market share to 14% over
the following decade.
Imperial will be taking on Winston, Salem, Kool and Maverick
cigarette brands and Blu e-cigarettes. But unlike Lorillard's
Newport brand, which is growing, those traditional cigarette brands
have been losing market share in the U.S.
The FTC also is expected to look at Reynolds share of the
menthol cigarette category. Lorillard's Newport is No. 1 in the
category with an estimated 37% share and Camel is No. 3 with 12%.
Menthol smokers almost exclusively smoke mentholated cigarettes, so
regulators will have to determine if Reynolds's position as the No.
1 and No. 3 player in that category would have pricing
advantages.
CLSA puts the likelihood the FTC approves the deal at about 50%.
Wells Fargo, however, puts the likelihood the FTC approves the deal
at 80%.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
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