Reynolds American To Acquire Lorillard In Transaction Valued At $27.4 Billion
Company Will Have Strong, Balanced Portfolio of Iconic Brands Across Key
WINSTON-SALEM, N.C. and GREENSBORO, N.C., July 15, 2014
WINSTON-SALEM, N.C. and GREENSBORO, N.C., July 15, 2014 /PRNewswire/ --
oNewport to Join Reynolds American's Operating Companies' Key Brands -
Camel, Pall Mall, Natural American Spirit, Grizzly and VUSE
oNext Step in Transforming Tobacco for Reynolds American
oR.J. Reynolds to Sell Selected Brands and Assets to a subsidiary of
Imperial Tobacco Group, PLC ("Imperial"), Significantly Enhancing
Imperial's U.S. Competitive Positioning
oBritish American Tobacco p.l.c. ("BAT") to Maintain 42% Ownership Position
in Reynolds American, Lorillard Shareholders to Hold 15%
oReynolds American and BAT Agree in Principle to a Joint Technology-Sharing
Strategy for Next-Generation Products
oAcquisition to Further Fuel Reynolds American's Investment in Innovation
oAcquisition Expected to be Accretive in First Full Year, with Strong
Double-Digit Accretion in the Second Year and Beyond
oSignificant Cost Savings and Combination Benefits
oA Joint Conference Call and Webcast to Discuss the Transaction will be
Held Today at 8 a.m. ET. See Details on Page 5
Reynolds American Inc. (NYSE: RAI), a leading tobacco products company and the
parent company of R.J. Reynolds Tobacco Company, and Lorillard, Inc. (NYSE:
LO), the third largest tobacco company in the U.S. and maker of Newport
cigarettes, today announced that they have entered into a definitive agreement
in which RAI has agreed to acquire Lorillard in a cash-and-stock transaction
currently valued at $68.88 per Lorillard share, or a total of $27.4 billion,
including the assumption of net debt.
Susan Cameron, President and Chief Executive Officer of Reynolds American Inc.
Under the terms of the transaction, which has been approved by the boards of
directors of both companies, Lorillard shareholders will receive, for each
Lorillard share, $50.50 in cash and 0.2909 of a share in RAI stock at closing,
representing $68.88 per share based on RAI's closing share price yesterday.
That represents a premium of 40.4% to the stock price on February 28^th, the
last trading day prior to initial media speculation around a possible
transaction, and a premium of 12.6% to the stock price on July 2^nd, prior to
more recent news reports.
Following the transaction, RAI is projected to have over $11 billion in
revenues and approximately $5 billion in operating income, and its operating
companies will have growth pillars across key industry categories: Newport,
Camel, Pall Mall and Natural American Spirit in combustible cigarettes;
Grizzly in smokeless tobacco; and VUSE in the growing e-cigarette market.
RAI also announced today that it has reached an agreement with Imperial, the
fourth-largest international tobacco company, under which Imperial has agreed
to purchase the KOOL, Salem, Winston, Maverick and blu eCigs brands and other
assets and liabilities for a total consideration of $7.1 billion in cash. RAI
expects to receive net cash proceeds of approximately $4.4 billion after
taxes. The addition of these brands to Imperial's U.S. operations will more
than triple its share of the U.S. cigarette market, position it for long-term
success in traditional tobacco products and the growing e-cigarette category,
and elevate it to the status of a major U.S. competitor for the first time.
As part of the divestiture, Imperial will acquire certain assets owned by
Lorillard including its manufacturing and R&D facilities in Greensboro, N.C.,
and approximately 2,900 employees, including a national sales force. The
closing of the sale of these assets to Imperial is conditioned upon, among
other things, RAI's completion of the acquisition of Lorillard.
BAT, RAI's largest shareholder, has reiterated its strong confidence in the
prospects of RAI and is fully supportive of, and has agreed to vote its shares
in favor of, the transaction. As part of the transaction, BAT will maintain
its 42 percent ownership in RAI through an investment of approximately $4.7
billion (based on RAI's closing share price of $60.16 as of July 2, 2014, the
same share price used to determine the stock component of Lorillard
In addition, RAI and BAT have agreed in principle to pursue an ongoing
technology-sharing initiative for the development and commercialization of
next-generation tobacco products, including heat-not-burn cigarettes and vapor
Susan Cameron, RAI's president and chief executive officer, will continue in
that role after completion of the acquisition, and the company will remain
headquartered in Winston-Salem, N.C. Murray Kessler, Lorillard's chairman,
president and chief executive officer, will join RAI's board after the closing
of the transaction.
Complementary Core Strengths
"Reynolds American and Lorillard have complementary core strengths and the
addition of Newport to our operating companies' existing key brand portfolios
– including flagship brands Camel, Pall Mall, Natural American Spirit and
Grizzly – will enhance our ability to compete in the combustible cigarette and
smokeless categories," said Cameron. "We are also confident in R.J. Reynolds
Vapor Company's digital vapor cigarette VUSE, which offers superior technology
and has received very positive early results in its national rollout. This
transaction will provide RAI with additional resources to invest in
innovation, R&D and its operating companies' brands. This will benefit adult
tobacco consumers and wholesale and retail customers alike."
"We are proud of Lorillard's record of shareholder value creation and
operational success, and we view this transaction, which provides a
significant premium to our shareholders, as the culmination of our efforts,"
said Kessler. "Importantly, we consider these transactions not only a win for
our shareholders, but also a win for our customers, consumers and employees.
We look forward to working with Reynolds American and Imperial to complete
"We are confident in the strategic and financial merits of these
transactions," Nicandro Durante, chief executive officer of BAT, said.
"Additionally, we find the long-term prospects of this combination compelling,
which is why we are making an additional investment in Reynolds American."
Creates Stronger, More Diversified Industry Player
The acquisition of Lorillard will significantly strengthen and diversify R.J.
Reynolds' cigarette portfolio, resulting in the most balanced offering in the
industry with brands including Newport, Camel and Pall Mall. The addition of
Newport will be a key component of R.J. Reynolds' future growth-brand strategy
as Newport leads the U.S. menthol category. Lorillard reported that Newport
ended 2013 with a 12.6 percent share of market, and the brand has demonstrated
a solid growth trajectory over the past three decades.
R.J. Reynolds will also enjoy increased geographic capabilities resulting from
its brands' strength in the Western U.S. and Lorillard's complementary strong
presence in the Eastern U.S.
Cameron said RAI believes R.J. Reynolds Vapor Company's VUSE brand is a
game-changing vapor product. "We made the determination several years ago to
internally design and develop VUSE as the first digital vapor cigarette, and
intend to remain focused on its growth and expansion nationwide. Imperial is
getting a great brand in blu eCigs, and will remain a key competitor in that
growing category of the industry.
"Additionally, our agreement with BAT to jointly pursue development of new
tobacco products, such as heat-not-burn cigarettes and vapor products, holds
great promise for global growth in those categories," Cameron said. "This will
certainly enhance value for all shareholders."
Cameron said that the company is confident that the review of the menthol
category of the U.S. cigarette market underway at the Food and Drug
Administration (FDA) will result in reasonable, science-based regulatory
"We agree with the FDA that menthol in cigarettes is not associated with an
increase in disease risk to the user compared to non-menthol cigarettes. We
further believe that current scientific evidence does not support that there
is any greater population-level risk as a result of menthol in cigarettes. The
agency's commitments to science-based regulation, coupled with a transparent
rulemaking process, will allow us to manage this issue over time," Cameron
The synergies and higher sales volumes resulting from this transaction will
position RAI's operating companies to fuel continued investment in product
development, R&D and innovation for the long-term future of the company. RAI
anticipates that after completion of the acquisition, R.J. Reynolds will begin
hiring for manufacturing and selected other positions and that process is
expected to extend over an 18-month period.
The transaction will also fuel RAI's continued investment in its transforming
tobacco agenda: leading change in the industry by driving innovation
throughout its businesses, redefining enjoyment for adult tobacco consumers,
reducing the harm caused by smoking, and accelerating the decline in youth
RAI believes this transaction will be attractive to its shareholders, allowing
them to realize future value through significant cost savings and the
company's enhanced growth prospects. The transaction also represents excellent
value for Lorillard shareholders through both the cash component and continued
participation through their ownership of RAI stock. Upon closing, Lorillard
shareholders will own approximately 15 percent of RAI.
RAI has a strong track record of successful integration efforts, such as those
undertaken following the acquisitions of Santa Fe Natural Tobacco Company and
American Snuff Company, and the business combination with Brown & Williamson
Tobacco Corp. The company expects to achieve cost savings of approximately
$800 million on a run-rate basis, primarily stemming from a reduction in
corporate expenses and the assumption by Imperial of certain Lorillard
operations along with the divested brands.
RAI expects the transaction to be accretive to earnings in the first full
year, with strong double-digit accretion in the second year and beyond (on a
percentage basis). RAI plans to maintain its current dividend policy until the
transaction closes and is committed to a strong dividend policy thereafter,
targeting a dividend payout ratio of 75 percent going forward. Lorillard will
continue its existing dividend policy until the deal closes. RAI will generate
significant cash flows and expects to maintain its investment grade credit
rating following the transaction. RAI has secured fully-committed bridge
financing and expects to issue permanent financing for the transaction.
The RAI/Lorillard transaction is subject to customary closing conditions
including approval by shareholders of both companies, as well as regulatory
approval. The Imperial transaction is subject to approval by shareholders of
the company, as well as regulatory and other approvals and other customary
closing conditions. RAI expects the transactions to close in the first half of
2015. The RAI/Lorillard transaction and the Imperial transaction are scheduled
to close substantially at the same time. Once the transaction is completed, a
transition period will commence during which R.J. Reynolds will contract
manufacture KOOL, Salem and Winston for Imperial and Imperial will contract
manufacture Newport for R.J. Reynolds.
Lazard is lead financial advisor to RAI and J.P. Morgan Securities LLC is
financial advisor. RAI's legal advisor is Jones Day. Lorillard's financial
advisors are Centerview Partners and Barclays and its legal advisor is Simpson
Thacher & Bartlett.
Investor Conference Call and Webcast Details
On Tuesday, July 15 at 8 a.m. Eastern Time U.S., Reynolds American and
Lorillard will host a joint call and webcast for the investment community to
discuss the transaction.
Speakers: Susan Cameron, president and CEO of RAI
Murray Kessler, chairman, president and CEO of Lorillard
Tom Adams, executive vice president and CFO of RAI
Morris Moore, vice president – investor relations of RAI
Webcast access: The joint call will be available online on a listen-only basis
All remarks made during the conference call will be current at the time and
will not be updated to reflect subsequent material developments.
Call-in Numbers: 877-390-5533(U.S. toll-free)
While news media representatives will not be permitted to ask questions during
the call, they are welcome to monitor the remarks on a listen-only basis.
Following the call, media representatives may direct inquiries to David Howard
at (336) 741-3489.
An investor presentation will be available on the investor sections of the RAI
and Lorillard websites after the call, as well as on a newly launched
transaction website, www.reynoldsamericaninfo.com.
For more information on the transaction, including a video interview with
Susan Cameron and Murray Kessler, please visit www.reynoldsamericaninfo.com. A
high-resolution video for rebroadcast can be downloaded from the website.
About Reynolds American Inc.
Reynolds American Inc. (NYSE: RAI) is the parent company of R.J. Reynolds
Tobacco Company; American Snuff Company, LLC; Santa Fe Natural Tobacco
Company, Inc.; Niconovum USA, Inc.; Niconovum AB; and R.J. Reynolds Vapor
oR.J. Reynolds Tobacco Company is the second-largest U.S. tobacco company.
R.J. Reynolds' brands include two of the best-selling cigarettes in the
U.S.: Camel and Pall Mall. These brands, and its other brands, including
Winston, Kool, Doral, Salem, Misty and Capri, are manufactured in a
variety of styles and marketed in the U.S.
oAmerican Snuff Company, LLC is the nation's second-largest manufacturer of
smokeless tobacco products. Its leading brands are Grizzly and Kodiak.
oSanta Fe Natural Tobacco Company, Inc. manufactures and markets Natural
American Spirit 100% additive-free natural tobacco products, including
styles made with organic tobacco.
oNiconovum USA, Inc. and Niconovum AB market innovative nicotine
replacement therapy products in the U.S. and Sweden, respectively, under
the Zonnic brand name.
oR.J. Reynolds Vapor Company makes and markets VUSE e-cigarettes, a highly
differentiated vapor product.
Copies of RAI's news releases, annual reports, SEC filings and other financial
materials, including risk factors containing forward-looking information, are
available at www.reynoldsamerican.com. To learn how RAI and its operating
companies are transforming the tobacco industry, go to the RAI website,
About Lorillard, Inc.
Lorillard, Inc. (NYSE: LO), through its Lorillard Tobacco Company subsidiary,
is the third largest manufacturer of cigarettes in the United States. Founded
in 1760, Lorillard Tobacco is the oldest continuously operating tobacco
company in the U.S. Newport, Lorillard's flagship premium cigarette brand, is
the top selling menthol and second largest selling cigarette in the U.S. In
addition to Newport, the Lorillard product line has four additional cigarette
brand families marketed under the Kent, True, Maverick and Old Gold brand
names. These five brands include 43 different product offerings which vary in
price, taste, flavor, length and packaging. Lorillard, through its other
subsidiaries, is also a leading global electronic cigarette company, marketed
under the blu eCigs and SKYCIG brands. Newport, Kent, True, Maverick, Old
Gold, blu eCigs and SKYCIG are the registered trademarks of Lorillard and its
subsidiaries. Lorillard maintains its corporate headquarters and manufactures
all of its traditional cigarette products in Greensboro, North Carolina.
About British American Tobacco
British American Tobacco is a global tobacco Group with brands sold in more
than 200 markets. It employs more than 57,000 people worldwide and has over
200 brands in its portfolio, with its cigarettes chosen by one in eight of the
world's one billion smokers. BAT has leadership in more than 60 markets around
the world. The Group generated £5.5 billion profit from operations in 2013.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this communication that are not historical in nature,
including financial estimates and statements as to regulatory approvals and
the expected timing, completion and effects of the proposed transactions,
constitute forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When used
in this communication and in documents incorporated by reference,
forward-looking statements include, without limitation, statements regarding
the benefits of the transactions, including future financial and operating
results, the combined company's plans, expectations, beliefs, intentions and
future strategies, and other statements that are not historical facts, that
are signified by the words "anticipate," "believe," "estimate," "expect,"
"intend," "may," "objective," "outlook," "plan," "project," "possible,"
"potential," "should" and similar expressions. These statements regarding
future events or the future performance or results of the combined company
inherently are subject to a variety of risks, contingencies and uncertainties
that could cause actual results, performance or achievements to differ
materially from those described in or implied in the forward-looking
Among the risks, contingencies and uncertainties that could cause actual
results to differ from those described in the forward-looking statements are
the following: the occurrence of any event, change or other circumstances that
could give rise to the termination of the transaction agreements; the risk
that the necessary shareholder approvals may not be obtained; the risk that
the necessary regulatory approvals may not be obtained or may be obtained
subject to conditions that are not anticipated; the risk that the proposed
transactions will not be consummated in a timely manner; risks that any of the
closing conditions to the proposed transactions may not be satisfied or may
not be satisfied in a timely manner; risks related to disruption of management
time from ongoing business operations due to the proposed transactions;
failure to realize the benefits expected from the proposed transactions;
failure to promptly and effectively integrate the acquisition; and the effect
of the announcement of the proposed transactions on the ability of Reynolds
American, Lorillard and Imperial to retain customers and retain and hire key
personnel, maintain relationships with suppliers, and on their operating
results and businesses generally. Discussions of additional risks,
contingencies and uncertainties are contained in Reynolds American's and
Lorillard's filings with the Securities and Exchange Commission (the "SEC").
Due to these risks, contingencies and other uncertainties, you are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this news release. Except as provided by federal
securities laws, neither Reynolds American or Lorillard is under any
obligation to, and each expressly disclaim any obligation, to update, alter or
otherwise revise any forward-looking statements, whether written or oral, that
may be made from time to time, whether as a result of new information, future
events or otherwise.
NO OFFER OR SOLICITATION
This communication is not intended to and does not constitute an offer to sell
or the solicitation of an offer to subscribe for or buy or an invitation to
purchase or subscribe for any securities or the solicitation of any vote or
approval in any jurisdiction pursuant to the acquisition, the merger or
otherwise, nor shall there be any sale, issuance or transfer of securities in
any jurisdiction in contravention of applicable law. No offer of securities
shall be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
Reynolds American will file with the SEC, a registration statement on Form S-4
that will include the Joint Proxy Statement of Reynolds American and Lorillard
that also constitutes a prospectus of Reynolds American. Reynolds American and
Lorillard plan to mail to their respective shareholders the Joint Proxy
Statement/Prospectus in connection with the transactions. INVESTORS AND
SHAREHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER
RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
REYNOLDS AMERICAN, LORILLARD, THE TRANSACTIONS AND RELATED MATTERS. Investors
and shareholders will be able to obtain free copies of the Joint Proxy
Statement/Prospectus and other documents filed with the SEC by Reynolds
American and Lorillard through the website maintained by the SEC at
www.sec.gov. In addition, investors and shareholders will be able to obtain
free copies of the Joint Proxy Statement/Prospectus and other documents filed
with the SEC by Reynolds American by contacting Reynolds American Investor
Relations at firstname.lastname@example.org or by calling
(336)741-5165 or at Reynolds American's website at www.reynoldsamerican.com,
and will be able to obtain free copies of the Joint Proxy Statement/Prospectus
and other documents filed with the SEC by Lorillard by contacting Lorillard
Investor Relations at email@example.com or by calling (336)
335-7000 or at Lorillard's website at www.lorillard.com.
PARTICIPANTS IN THE SOLICITATION
Reynolds American and Lorillard and certain of their respective directors and
executive officers and employees may be considered participants in the
solicitation of proxies from the respective shareholders of Reynolds American
and Lorillard in respect of the transactions contemplated by the Joint Proxy
Statement/Prospectus. Information regarding the persons who may, under the
rules of the SEC, be deemed participants in the solicitation of the respective
shareholders of Reynolds American and Lorillard in connection with the
proposed transactions, including a description of their direct or indirect
interests, by security holdings or otherwise, will be set forth in the Joint
Proxy Statement/Prospectus when it is filed with the SEC. Information
regarding Reynolds American's directors and executive officers is contained in
Reynolds American's Annual Report on Form 10-K for the fiscal year ended
December 31, 2013, which is filed with the SEC. Information regarding
Lorillard's directors and executive officers is contained in Lorillard's
Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which
is filed with the SEC.
Contacts: For Reynolds American: For Lorillard:
Media: David Howard Media: Meaghan Repko or Andrea
(336) 741-3489 (212) 355-4449
Investor Relations: Morris Moore Investor Relations: Bob Bannon
(336) 741-3116 (336) 335-7665
Murray Kessler, Chairman, President and Chief Executive Officer of Lorillard,
Photo - http://photos.prnewswire.com/prnh/20140715/126996
SOURCE Reynolds American Inc.; Lorillard, Inc.
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