NEW YORK (The Deal) -- Camel maker Reynolds American (RAI) said Tuesday it had agreed to buy Newport producer Lorillard (LO) for $27.4 billion, including assumed debt, in a deal that hands a supporting role to the U.K.'s two leading tobacco companies.
The two North Carolina tobacco groups said they had forged a firm agreement for Reynolds to pay $68.88 per Lorillard share, breaking down into $50.50 in cash and 0.2909 of a Reynolds share. As part of the deal, British American Tobacco plc will invest $4.7 billion to maintain its stake in the enlarged Reynolds at 42%, while the combined entity will sell $7.1 billion of assets, including the KOOL, Salem, Winston, Maverick and blu eCigs brands, to Imperial Tobacco Group plc.
Those disposals will generate net proceeds of $4.4 billion for the Winston Salem, N.C., seller and more than triple Bristol, England-based Imperial's share of the U.S. cigarette market, to 10%.
The agreement ended months of speculation about a Reynolds-Lorillard combination and will create an entity with more than $11 billion of sales, and operating profit of about $5 billion. That compares with Marlboro maker and global market leader Altria Inc.'s $24.5 billion of revenue in 2013, and operating profit of $8.1 billion. Lorillard shareholders will have 15% of the enlarged equity, the companies said.
"This transaction will result in substantial synergies as well as growth opportunities for the new company," said Reynolds president and CEO Susan Cameron in a video presentation.
She will retain that role, while Lorillard's Murray Kessler, who is president, chairman and CEO, will join the Reynolds board upon closing.