RAI CEO Addresses Merger Rumors

WINSTON-SALEM, N.C. -- A Reynolds American Inc. (RAI) and British American Tobacco (BAT) merger? Not so fast.

Speaking at the Goldman Sachs Global Staples Summit on Tuesday, RAI's new President and CEO Susan Cameron quieted talk about a possible RAI deal with London-based BAT -- or any tobacco company, for that matter.

Rumors began to swirl in March that Winston-Salem-based RAI could be eyeing an acquisition of Greensboro, N.C.-based Lorillard Inc. As recently as early this week, British American Tobacco was thrown into the mix. BAT reportedly tapped Deutsche Bank to work alongside UBS, the company's financial adviser, on recommending how it should pursue and finance deals in America, as CSNews Online previously reported.

That move gave rise to speculation that BAT, which acquired 42 percent of RAI a decade ago under a signed agreement that prevented a hostile takeover, would give the company a closer look as the pact nears its 10-year expiration date.

Couple that with Cameron's past experience with BAT, and talks about a possible merger grew louder. Cameron worked with BAT for 20 years before the merging of R.J. Reynolds Co. and BAT subsidiary Brown & Williamson Tobacco Corp. in 2004.

At Tuesday's summit, Cameron explained that RAI's board of directors approached her about rejoining the company as its leader after Daniel Delen announced he was stepping down from the president and CEO position as of May 1. "[Delen] decided to leave a bit sooner than he originally thought he would for family reasons," she explained, adding that she loves RAI and still has a "few good years in me."

The "standstill" pact with BAT is set to expire in early July, but the governance agreement between the two companies remains in place for "perpetuity" until BAT owns 100 percent of RAI, Cameron explained. Under the agreement, BAT is allowed to place two management representatives and appoint three independent directors to the RAI board, which has a total of 13 directors.

"They do not have a majority. There is no change in the governance structure until BAT owns 100 percent of Reynolds," the CEO said. "Even if they were to creep -- and I don’t see BAT as a stealth predator, but as a partner in our business -- there will be no change in that governance agreement."

She further explained that RAI makes products for BAT and in turn, BAT makes products for RAI, noting the two "have a good relationship."