A Done Deal: RAI-Lorillard Merger Completed

WINSTON-SALEM, N.C. — The deck has officially been shuffled in the Big Three.

Reynolds American Inc. (RAI) has completed its acquisition of fellow tobacco company Lorillard Inc. RAI also closed the deal's related divestiture transactions with ITG Brands LLC, a subsidiary of Imperial Tobacco Group plc for approximately $7.1 billion.

With all the deals sealed, RAI remains the No. 2 player in the U.S. tobacco space — bolstered by Lorillard — and ITG Brands emerges as the new No. 3. Richmond, Va.-based The Altria Group Inc. keeps its title as No. 1.

As a result of the acquisition, Lorillard is a wholly owned subsidiary of RAI, and former Lorillard shareholders will own approximately 15 percent of RAI's common stock. 

RAI's operating companies now have key brands across major industry categories: Newport, Camel, Pall Mall and Natural American Spirit in combustible cigarettes; Grizzly in smokeless tobacco; and VUSE in the vapor market. 

From the acquisition, former Lorillard shareholders will receive $50.50 in cash and 0.2909 of a share of RAI common stock for each share of Lorillard common stock they owned.  

"As a result of this acquisition, Reynolds American has a significantly strengthened, balanced and diversified portfolio of iconic brands across all key categories — the most balanced in the industry," said Susan M. Cameron, RAI's president and CEO. "The transaction supports RAI's efforts to lead the transformation of the tobacco industry. The synergies, improved operational efficiencies and higher sales volumes generated by this combination will better position RAI's operating companies to fuel continued investment in brand building, research and development and innovation for the long-term future of the company."

The Deal & The Players

The merger of the No. 2 and No. 3 tobacco companies was announced in July. Under the deal structure, Winston-Salem-based RAI bought Greensboro-based Lorillard for roughly $27.4 billion and kept the Newport brand, which represents 90 percent of Lorillard's existing sales and profitability, as well as the True and Old Gold brands. 

United Kingdom-based British American Tobacco, RAI's largest shareholder, maintained its 42-percent ownership in RAI through an investment of approximately $4.7 billion.

Once the deal closed, Imperial Tobacco acquired the Winston, Kool and Salem brands from RAI and the Maverick and blu eCig brands from Lorillard. These acquisitions build on Imperial's existing U.S. portfolio at Commonwealth-Altadis, which currently accounts for a 3-percent share of the U.S. market, principally through the USA Gold brand.

In addition, United Kingdom-based Imperial acquired Lorillard's infrastructure, which includes the company's manufacturing facility, headquarters offices, research and development facility, and approximately 2,900 employees. Imperial's new U.S. subsidiary will be known as ITG Brands and be based in Greensboro. David Taylor, former chief financial officer at Lorillard, leads ITG Brands as CEO.

The New No. 3

Imperial also made other key management moves to boost ITG Brands. 

Matthew Phillips, previously corporate affairs director and a member of the Imperial Tobacco board for the past three years, has been appointed chief development officer. In this new role, he will be responsible for corporate development and Fontem Ventures, including blu. 

He will also retain his corporate and legal affairs responsibilities and will continue to report to Alison Cooper, Imperial Tobacco's chief executive.

Arthur van Benthem, previously group sales director, was appointed CEO of Fontem Ventures. Responsibility for Imperial's global tobacco sales activities will be split across three division leaders reporting to Cooper, with Amal Pramanik continuing to lead the Growth Division, Dominic Brisby continuing to lead the Returns Division and Taylor leading ITG Brands.

"I'm delighted to announce the completion of this deal, which will transform our position in the U.S. and generate significant returns for our shareholders," Cooper said. "We will focus on leveraging our enhanced scale and capabilities to maximize growth opportunities for our portfolio and establish ITG Brands as a major competitive player in the U.S. tobacco market. I'm also pleased to announce senior appointments that will strengthen our management structure and ensure that it is aligned with the group's ongoing international development." 

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