Reynolds-Lorillard Merger Is Not a Sure Thing

WINSTON-SALEM, N.C. -- Less than 24 hours after reports called a merger between Reynolds American Inc. (RAI) and Lorillard Inc. "imminent," talk has quieted down.

According to financial reporting outlet Seeking Alpha, shares of Lorillard have retreated after reality set in that a RAI deal "is complicated and could take some time to work out." The report also called London-based British American Tobacco (BAT) a "third wheel," explaining that it could make a play for RAI after a 10-year standstill agreement expires in July.

Seeking Alpha added that analysis is divided on whether a deal will end up being completed at all.

The possibility of a merger between two of the Big Three tobacco companies has been swirling around the industry since March. Chatter grew louder over the past few weeks when British American Tobacco -- which has a 42-percent stake in RAI -- upped the ante by tapping Deutsche Bank to work alongside UBS, the company's financial adviser, on recommending how it should pursue finance deals in America, as CSNews Online previously reported.

RAI President and CEO Susan Cameron tried to quell any rumors at the Goldman Sachs Global Staples Summit on March 13. However, those very rumors hit a fever pitch on Wednesday afternoon, causing stock prices for both Winston-Salem-based RAI and Greensboro, N.C.-based Lorillard to spike late in the day.

On Wednesday afternoon, Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, put the possibility of an RAI-Lorillard merger at 90 percent. Any deal would incorporate synergies of $400 million, she said, noting that BAT could either acquire or form a strategic partnership with the combined entity.