News that America's second and third-largest tobacco companies are merging is good news for Imperial Tobacco (IMT). To minimise concerns over squeezed market competition, Reynolds American (US: RAI) and Lorillard (US: LO) will sell the Kool, Salem, Winston and Maverick brands, as well as the next generation Blu e-cigarette brand, to the British tobacco giant. The combined company will hold on to the leading US menthol cigarette brand, Newport, as well as Camel and Vuse, Reynolds' e-cigarette product.
The asset sale is part of a complex four-way $27bn (£15.7bn) merger, which is expected to have a significant effect on the existing $90bn tobacco market. As a result, Imperial's newly-acquired brands - for which it plans to pay just over $7bn - will triple its share of the US market. Meanwhile, the Reynolds/Lorillard combo is expected to generate more than $11bn in annual revenues and $5bn in operating income. It will have a 40 per cent share of the US market, while Imperial's US market share should rise to approximately 10 per cent.
In addition, Imperial's UK-based rival British American Tobacco (BAT) - which owns 42 per cent of Reynolds - will inject $4.7bn into the newly-enlarged company to maintain its stake.
