A Lorillard Inc. investor sued to block its $25 billion acquisition by Reynolds American Inc. (RAI), claiming the deal favors the buyer.
Reynolds, the maker of Camel and Pall Mall cigarettes, said July 15 that it would acquire its rival for cash and stock, valuing Greensboro, North Carolina-based Lorillard at $68.88 a share. The takeover would leave the 400-year-old U.S. tobacco industry with two competitors, Reynolds and Altria Group Inc. (MO), controlling 90 percent of the market.
The proposed deal is the product of a flawed process and provides little benefit to stockholders, according to the complaint made public today in Delaware Chancery Court.
“To the detriment of the company’s shareholders, the terms of the merger agreement substantially favor Reynolds and are calculated to unreasonably dissuade potential suitors from making competing offers,” the investor, Vincent Valentino, said in the complaint. He is seeking to represent all Lorillard shareholders.
Lorillard fell almost 1 percent to $60.48 at 4:01 p.m. in New York trading.
British American Tobacco Plc (BATS) will fund $4.7 billion of the transaction, allowing it to maintain a 42 percent stake in Winston Salem, North Carolina-based Reynolds.
As part of the deal, BAT’s U.K. rival Imperial Tobacco Group Plc (IMT) will acquire brands such as Kool and Blu e-cigarettes for $7.1 billion. Lorillard shareholders won’t benefit from that transaction, Valentino said.
The deal is “unfair and inadequate because, among other things, the intrinsic value of Lorillard is materially in excess of the amount offered,” according to the complaint.
David Howard, a spokesman for Reynolds American, and Lorillard spokesman Bob Bannon declined to comment on the lawsuit.
The case is Valentino v. Lorillard Inc. (LO), CA9932, Delaware Chancery Court (Wilmington)
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