Reynolds (RAI) Stock Gains After Winning Regulatory Approval for Lorillard Merger

NEW YORK (TheStreet) -- Reynolds American (RAI) shares are up 1.95% to $76.93 in early market trading on Wednesday after the company won U.S. antitrust regulatory approval for its proposed $27.4 billion bid to purchase rival Lorillard (LO) following the closing bell yesterday.

The merger would combine the country's second and third largest tobacco companies and is contingent on the two cigarette makers divesting four of their brands including Winston, Kool, Salem and Maverick.

The divested brands will be purchased by U.K. based Imperial Tobacco Group (ITYBY).

Reynolds and Lorillard have market shares of 26% and 14% respectively, trailing Malboro brand manufacturer and industry leader Altria Group's (MO) 47% market share.

The five-member FTC board that approved the deal voted 3-2 in favor of the merger. 

Reuters noted a conflict of interest on the panel as the FTC is commissioned with preventing higher prices through industry consolidation in spite of current U.S. public policy that aims to prevent smoking by increasing prices.

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, increase in net income, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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