American Reynolds and Lorillard are in ongoing talks this week regarding a merger that would redefine big tobacco as a global industry.
The move, which would gain the merger a combined market capitalisation of $56 billion (£32b), would bring two of the three largest tobacco operators in the US together.
If it were to go ahead, there would be significant effects on other international competitors, including British American Tobacco (BAT), which owns a 42% stake in Reynolds, as well as Imperial, which has agreed to buy assets from the merged group.
So far, the discussions, which have been ongoing since early this year, have confirmed a merging price. The talks have also finalised which cigarette brands and production facilities to liquidise in order to end any antitrust gauges.
Earlier this year the Financial Times reported on the discussions regarding a merger between the US tobacco giants. However, concerns over competition and regulators stopping the merger have put doubt on the productivity of the talks.
Another issue is that BAT owns a significant portion of Reynolds, making a merger increasingly complex with rights to assets and decision-making. It would also raise concerns over BAT’s dominance over the market.
The US is currently the largest tobacco market, with annual sales of over $90 billion (£52bn), although it has been shrinking by 3% a year as health concerns and anti-smoking campaigns gain increasing momentum.
Altria, one of the three largest tobacco competitors in the US is also the biggest, with over half of the market share under its control through its Philip Morris US division. Its Marlboro cigarettes alone currently dominate 44% of the market.
The merger could be a profitable move for smaller tobacco firm Imperial, which owns 3% of the US market share. With the deal, Imperial would gain certain assets as it buys into the group.
This is, however, a bad move for international competition – which could move regulators to stop the deal. Japan Tobacco, which has recently made significant pushes into the European market could be effectively pushed out of the US market, or forced to invest significantly to gain a large acquisition.
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