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Why Lorillard (LO) Stock Is Down Today

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.

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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 Chart LO Price data by YCharts

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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