LONDON -- Chatter about a possible merger in the tobacco industry has been growing steadily over the past few months and that talk just got a little bit louder.
According to U.K.-based The Times, British American Tobacco (BAT) has tapped Deutsche Bank to work alongside UBS, the company's financial adviser, on how it should pursue and finance deals in America.
Greensboro, N.C.-based Lorillard Inc. and Winston-Salem, N.C.-based Reynolds American Inc. (RAI) have been named as likely targets.
London-based BAT is the maker of such leading brands as Dunhill, Kent, Lucky Strike and Pall Mall. Its move to investigate a U.S. deal comes as a pact with RAI nears its expiration date. According to the report, BAT acquired 42 percent of RAI a decade ago under a signed agreement that prevented a hostile takeover.
In addition, Susan Cameron, RAI's new CEO, worked with BAT for 20 years before the merging of R.J. Reynolds Co. and BAT subsidiary Brown & Williamson Tobacco Corp. in 2004.
Consolidation talk has also heated up in the United States. Two months after reports surfaced that RAI was eyeing Lorillard, Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, said RAI "has an appetite for acquisitions," as CSNews Online previously reported. Herzog put the probability of a RAI-Lorillard deal at 80 percent.
In Wells Fargo Securities' view, a combined company would make a strategic partnership even more compelling for multinational tobacco company BAT and "is a win-win for all parties to market/sell e-vapor products globally," she added.