Business digest: Reynolds American and Lorillard confirm merger talks

July 11, 2014
TOBACCO
Reynolds, Lorillard considering merger

Big Tobacco may soon get smaller.

The makers of Camel and Newport cigarettes said Friday that they are in talks to combine. A deal between Reynolds American and Lorillard, two of the nation’s oldest and biggest tobacco companies, would create a formidable No. 2 to leader Altria Group, the Richmond-based owner of Philip Morris USA.

The news follows months of speculation about a possible combination. In separate statements, the companies said that no agreement had been reached and that there was no guarantee one would be.

Demand for traditional cigarettes is falling in the face of tax increases, smoking bans, health concerns and social stigma. U.S. cigarette sales fell about 2.6 percent last year, to 285 billion cigarettes, according to market researcher Euromonitor International.

But rising prices and reductions in costs have kept the industry handsomely profitable. The larger scale of a combined Reynolds-Lorillard could make future cost-cutting easier.

Reynolds markets Camel, Pall Mall and Natural American Spirit cigarettes and the Grizzly and Kodiak smokeless tobacco brands. It has about 27 percent of the U.S. retail cigarette market. Reynolds, based in Winston-Salem, N.C., also expanded its Vuse electronic cigarette nationally last month. Reynolds’s profit rose 35 percent, to $1.72 billion, last year on revenue of $8.24 billion, excluding excise taxes.

Greensboro, N.C.-based Lorillard, which was founded before the Revolutionary War and is the oldest continuously operating U.S. tobacco company, has about 15 percent of the retail market. Its flagship Newport brand commands 37.5 percent of the menthol cigarette market.

Lorillard became the first major tobacco company to jump into the e-cigarette market when it acquired the Blu e-cigarette brand in 2012. Blu accounts for almost half of all e-cigarettes sold. Lorillard’s profit rose 8.5 percent, to $1.19 billion, last year on revenue of $4.97 billion, excluding excise taxes.

— Associated Press

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