Imperial statement gives credence to RAI/Lorillard merger speculation

Imperial Tobacco has confirmed that it is in discussions with Reynolds American Inc. (RAI) and Lorillard about the possible acquisition of certain brands and assets owned by RAI and Lorillard.

Imperial’s statement supports speculation that RAI is in talks over the acquisition of Lorillard because any such merger would require the divestment of brands so as to avoid anti-trust issues.

Bonnie Herzog, managing director for beverage, tobacco and convenience store research at Wells Fargo Securities, who has been commenting on a possible RAI/Lorillard deal since at least early March, said today that, based on reports by the Financial Times and Bloomberg, an announcement was expected “very soon.”

Herzog said she expected that Imperial, through its U.S. operation, Commonwealth Brands, might acquire several of the smaller, nonpriority brands in an attempt to pre-empt any potential U.S. FTC (Federal Trade Commission) anti-trust issues.

Earlier this week, further speculation had it that British American Tobacco, which already owns 42 percent of RAI, might make a bid to acquire the remaining 58 percent when, at the end of this month, a standstill agreement between BAT and RAI is due to expire.

Herzog maintained, however, that a RAI/Lorillard deal was more likely, though she added that, if a BAT/RAI merger did occur, ultimately it was likely that Lorillard would be acquired by a combined BAT/RAI.

She said yesterday that the RAI/Lorillard deal would have the “blessing” of BAT.

Meanwhile, in a statement posted on its website, Imperial said it noted the recent speculation relating to a potential transaction involving RAI and Lorillard.

“Imperial confirms it is in discussions with Reynolds and Lorillard to evaluate a possible acquisition of certain assets and brands owned by Reynolds and Lorillard,” the statement said.

“The USA remains one of the world’s largest and most profitable cigarette markets. Imperial would proceed with an acquisition only if its terms met strict transaction criteria.

“There can be no certainty as to the terms upon which any acquisition or related debt financing may be agreed or whether any transaction will take place. A further announcement will be made if and when appropriate.”