RAI judged likely to acquire Lorillard

It looks increasingly likely that Reynolds American (RAI) will acquire Lorillard, according to a research note issued by Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities (WFS).

In part, Herzog’s position is based on news reports that came out yesterday afternoon indicating that RAI was in “active discussions” to buy Lorillard.

But it is based too on WFS’s RAI-Lorillard merger analysis published on March 3 and on the belief that such a merger would be value creating for the shareholders of both RAI and Lorillard.

Herzog said also that British American Tobacco could either acquire or, more likely, form a strategic partnership with the combined RAI-Lorillard entity.

Given that it formed a partnership, BAT would be likely to contribute capital to help finance the deal and maintain in the combined entity the 42 percent stake it has in RAI.