WASHINGTON -- Tempering reports earlier this week that the Federal Trade Commission (FTC) was about to block the merger of cigarette makers Reynolds American Inc. and Lorillard Inc., people familiar the matter told The Wall Street Journal on Thursday that the agency is considering possible settlement terms to allow the $25-billion deal to proceed.
The companies have been meeting with FTC commissioners this week to discuss the merger, which would combine the nation’s second- and third-largest cigarette makers. The tobacco firms announced their deal last July, and the commission has been scrutinizing it closely for potential antitrust concerns.
People familiar with the review process said some FTC staffers have raised objections to a Reynolds-Lorillard combination. Other key figures within the commission believe the better approach would be to approve the merger with a binding legal settlement that includes divestures, said the report.
No agreement has been reached and no final decision made, leaving the outcome still uncertain, the Journal said.
Reynolds and Lorillard are the second- and third-largest U.S. cigarette makers, respectively, behind Altria Group Inc., Richmond, Va. The merger would bring cigarette brands Camel and Newport under one roof and boost Reynolds' market share to about 35% from 24%. Altria has top brand Marlboro and a 47% market share.
When Winston-Salem, N.C.-based Reynolds and Greensboro, N.C.-based Lorillard announced their deal, they sought to address potential government concerns about competition by selling $7.1 billion in cigarette brands and other assets to Imperial Tobacco Group PLC, a U.K.-based global tobacco company.
The FTC is scrutinizing Imperial closely to determine whether the company can emerge as a significant U.S. competitor with the assets sold by Reynolds and Lorillard, including Blu electronic cigarettes and Maverick, Kool, Salem and Winston cigarettes.
Greensboro, N.C.-based Lorillard, through its Lorillard Tobacco Co. subsidiary, is the third largest manufacturer of cigarettes in the United States. Newport, Lorillard Tobacco's flagship premium cigarette brand, is the top-selling menthol and second-largest-selling cigarette in the United States. In addition to Newport, the Lorillard Tobacco product line has four additional cigarette brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five brands include 43 different products. Lorillard, through its other subsidiaries, is also a leading global electronic cigarette company, marketed under the blu eCigs brand in the United States and U.K.
Reynolds American, Winston-Salem, N.C., is the parent company of R.J. Reynolds Tobacco Co., the second-largest U.S. tobacco company with brands including Camel, Pall Mall, Winston, Kool, Doral, Salem, Misty and Capri; American Snuff Co. LLC, the nation's second-largest manufacturer of smokeless tobacco products, with brands including Grizzly and Kodiak; Santa Fe Natural Tobacco Co. Inc., which manufactures and markets Natural American Spirit 100% additive-free natural tobacco products; Niconovum USA Inc.; Niconovum AB, which market nicotine replacement therapy products in the United States and Sweden, respectively, under the Zonnic brand; and R.J. Reynolds Vapor Co., which makes and markets Vuse electronic cigarettes.
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