NEW YORK (TheStreet) -- Reynolds American (RAI) shares are down -2.3% to $61.73 in early market trading on Tuesday after the company agreed to buy rival Lorillard (LO) for $27.4 billion.
The cash and stock deal merges two of the top three most popular cigarette companies in America, combining brands such as Camel, Newport and Pall Mall. In an effort to overcome any potential regulatory hurdles the companies will also divest certain brands.
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The U.K.'s Imperial Tobacco Group (ITYBY) will pay $7 billion to acquire the spun off brands, Kool, Winston and Salem, which in turn will triple its own size in the American Market.
As part of the deal Lorillard will also spin off its Blu e-cigarette brand which it bought two years ago for $135 million. E-cigarettes are the fastest growing segment in the industry and it is not clear yet whether the new company will produce another e-cigarette brand in the future.
Lorillard shares are down -6.1% to $63.10 in early market trading today.
TheStreet Ratings team rates REYNOLDS AMERICAN INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate REYNOLDS AMERICAN INC (RAI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."