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Reynolds Said to Aim for July Lorillard Deal as Talks Continue

July 4 (Bloomberg) -- Reynolds American Inc. is aiming to get a deal done to buy rival Lorillard Inc. by the end of the month, as the two companies pursue what has been an elusive agreement to combine the second- and third-largest tobacco producers in the U.S., people with knowledge of the matter said.

British American Tobacco Plc, which owns 42 percent of Reynolds, is also involved in the talks because it would need to be comfortable with any dilution in its stake, said the people, who asked not to be identified beacuse the talks are private. The three companies have been in on-and-off talks since late last year and have passed at least two deadlines without an agreement, the people said.

The size and complicated nature of a possible deal involving three of the world’s largest tobacco companies make a transaction far from certain, the people said. Reynolds, the maker of Camel cigarettes, and Lorillard, whose Newport brand is the nation’s top-selling menthol cigarette, need to agree on price. British American Tobacco would then have to approve the terms, and all three would have to agree to sell some brands to meet U.S. government antitrust concerns, the people said.

The shares of Lorillard, based in Greensboro, North Carolina, have increased 27 percent this year, giving it a market value of more than $23 billion.

Standstill Agreement

The three companies may be eyeing a deal by the end of July in part because a standstill agreement barring London-based British American Tobacco from increasing its stake in Reynolds ends this month. The U.K. tobacco giant wanted to know how much a deal would dilute its current holding before deciding what to do with its option, the people said.

Representatives for Reynolds, Lorillard and British American Tobacco didn’t respond to requests for comment on the talks.

While regulatory concerns are an issue, even a combined Reynolds-Lorillard would still be smaller than the biggest U.S. tobacco seller, Altria Group Inc., whose brands account for more than half of the U.S. retail cigarette market, according to the company’s website. Altria’s Marlboro brand alone has market share of about 44 percent in the U.S.

Combining Lorillard and Reynolds would create a cigarette maker with more than $13 billion in annual revenue.

CNBC reported earlier that Reynolds may announce a takeover of Lorillard within weeks.

To contact the reporter on this story: David Welch in New York at dwelch12@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net Elizabeth Wollman, Elizabeth Fournier

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