WASHINGTON – While one tobacco industry analyst believes such a move is “a low probability,” the Federal Trade Commission (FTC) staff is recommending a lawsuit to block the $27-billion merger of cigarette makers Reynolds American and Lorillard, according to a report by The New York Post, citing a “well-placed DC source not working on the case.”
As reported in a 21st Century Smoke/CSP Daily News Flash, the five FTC commissioners can overrule staff, although that is not a common occurrence.
Regulators are scheduled to meet today on a merger vote that sources believe is the Reynolds case.
The FTC and the tobacco companies declined comment to the newspaper.
“While this is a negative development, we continue to believe deal approval is likely though with some modest modifications to the divestiture package in the form of behavioral remedies,” Nik Modi, analyst for RBC Capital Markets, New York.
“While we believe there is a low probability the FTC will sue to block the deal,” he continued, but if it does, “the agency will seek an injunction in federal courts for the deal and will simultaneously pursue administrative proceedings in its internal court. As a reminder, the FTC has recently suggested it will drop internal proceedings in cases that do not win federal injunction.”
The FTC has spent months examining Reynolds's $25 billion planned acquisition of Lorillard, a deal announced in July. The companies are the second- and third-largest U.S. cigarette makers, behind Altria Group Inc. The merger would bring cigarette brands Camel and Newport under one house and boost Reynolds's market share to about 35% from 24%. Altria has top brand Marlboro and a 47% market share.
The face-to-face meetings will give the FTC's commissioners a chance to ask questions and hear directly from company representatives before making a decision, said the report.
When Winston-Salem, N.C.-based Reynolds and Greensboro, N.C.-based Lorillard announced their deal, they sought to address potential government concerns about competition by selling $7.1 billion in cigarette brands and other assets to Imperial Tobacco Group PLC, a U.K.-based global tobacco company.
The FTC is scrutinizing Imperial closely to determine whether the company can emerge as a significant U.S. competitor with the assets sold by Reynolds and Lorillard, including Blu electronic cigarettes and Maverick, Kool, Salem and Winston cigarettes.
Greensboro, N.C.-based Lorillard, through its Lorillard Tobacco Co. subsidiary, is the third largest manufacturer of cigarettes in the United States. Newport, Lorillard Tobacco's flagship premium cigarette brand, is the top-selling menthol and second-largest-selling cigarette in the United States. In addition to Newport, the Lorillard Tobacco 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 products. Lorillard, through its other subsidiaries, is also a leading global electronic cigarette company, marketed under the blu eCigs brand in the United States and U.K.
Reynolds American, Winston-Salem, N.C., is the parent company of R.J. Reynolds Tobacco Co., the second-largest U.S. tobacco company with brands including Camel, Pall Mall, Winston, Kool, Doral, Salem, Misty and Capri; American Snuff Co. LLC, the nation's second-largest manufacturer of smokeless tobacco products, with brands including Grizzly and Kodiak; Santa Fe Natural Tobacco Co. Inc., which manufactures and markets Natural American Spirit 100% additive-free natural tobacco products; Niconovum USA Inc.; Niconovum AB, which market nicotine replacement therapy products in the United States and Sweden, respectively, under the Zonnic brand; and R.J. Reynolds Vapor Co., which makes and markets Vuse electronic cigarettes.
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