FTC Seeks More Info on RAI-Lorillard Deal

WASHINGTON, D.C. -- Federal investigators are taking a closer look at Reynolds American Inc.'s (RAI) proposed acquisition of Lorillard Inc.

The Federal Trade Commission (FTC) requested that both tobacco companies submit more information on the pending deal, as well as the divestiture of several brands to Imperial Tobacco Group plc. The review, known as a second request, comes as part of an antitrust review. The companies did not detail what information the FTC has requested.

However, according to The Associated Press, federal merger guidelines place importance on future competition. In addition, analysts have focused specifically on the share of adult smokers under 30 years old as a predictor of future market share positions and trends. Currently, the industry distribution of that market is split between three companies, but would shift to two companies having about 45-percent share of adult smokers under 30.

Other issues include enhanced market power, particularly in the menthol category, in which Newport and Camel are two of the largest players, the news outlet reported.

In addition to approval from the FTC, the merger and the Imperial transaction are subject to shareholder and other approvals, as well as other customary closing conditions. The deal is still on track to close in the first half of 2015.

After months of speculation, Winston-Salem, N.C.-based RAI and Greensboro, N.C-based Lorillard announced the proposed $27.4-billion merger on July 15.

Under the terms of the agreement, RAI will buy Lorillard and keep 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, will maintain its 42-percent ownership in RAI through an investment of approximately $4.7 billion, as CSNews Online previously reported.

After that transaction closes, Imperial Tobacco will pay $7.1 billion for the Winston, Kool and Salem brands from RAI and the Maverick and blu eCig brands from Lorillard. These acquisitions will 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 will acquire Lorillard's infrastructure, which includes the company's manufacturing facility, headquarters offices, research and development facility, and approximately 2,900 employees.

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