NEW YORK (TheStreet) -- Lorillard LO fell sharply on Tuesday after Reynolds American RAI said it would buy its rival for $25 billion to merge two of the world's largest cigarette makers.
Reynolds, which makes Camel and Pall Mall, offered $68.88 a share for Lorillard, which represented a 2.5% premium to Lorillard's closing price of $67.22 on Monday. The deal has a value of $27.4 billion, including debt.
The deal gives the second-largest U.S. cigarette maker access to Newport, the nation's leading menthol cigarette, to help it compete with the top U.S. tobacco company Altria Group MO, which makes Marlboro.
To avoid antitrust issues, Reynolds said it would sell its KOOL, Salem and Winston and Lorillard's Maverick and blue eCigs brands, along with other assets, to Britain's Imperial Tobacco Group for $7.1 billion in cash. The Imperial Tobacco Group, Reynolds' largest shareholder, said it would purchase more shares to keep its 42% ownership of Reynolds through a $4.7 billion investment.
Lorillard was down 7.53% to $62.16 at 9:58 a.m. Reynolds was down 3.91% to $60.71.LO Price data by YCharts