R.J. Reynolds and Brown & Williamson to Merge

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R.J. Reynolds and Brown & Williamson to Merge

CHARLOTTE, N.C. -- In a move that had been rumored for nearly two years, tobacco giants R.J. Reynolds Tobacco Co. and rival Brown & Williamson Tobacco Corp., the U.S. subsidiary of British American Tobacco PLC, are uniting their U.S. operations as a way to survive the growing popularity of discounted brands and lawsuits.

The deal announced Monday vastly expands the reach of two tobacco companies that together produce about one of every three cigarettes smoked in the United States. The merged operation will be called Reynolds American Inc., with about $10 billion in annual sales. It will still trail industry giant Philip Morris USA, whose brands command about half the U.S. cigarette market, according to an Associated Press report.

Among the brands produced by R.J. Reynolds are Camel, Winston, Salem and Doral, while Brown & Williamson's top brands include Kool, Lucky Strike, GPC and Capri.

As part of the proposed deal, R.J. Reynolds will pay $2.6 billion in cash and stock for a 58 percent controlling stake in the new company, the report said. British American Tobacco will own 42 percent of the new company through its Brown & Williamson subsidiary. The tax-free deal also frees British American from future tobacco litigation and allows the company to shift its share of payments due under a national settlement with states onto the new entity.

"This agreement marks a milestone for both companies," said Andrew J. Schindler, RJR's chairman and chief executive, said in a statement.

British American Tobacco chairman Martin Broughton said the merger "will improve our competitive position in the most important cigarette market in the world."

The merger is expected to result in more than $500 million in annual savings.

The merger follows a tumultuous period for RJR. In September, the tobacco company said it was eliminating 2,600 jobs, or 40 percent of its work force, as part of a massive restructuring designed to retreat from stiff discount-brand competition. RJR previously said it will focus future spending on premium brands Camel and Salem and will scale back investment in the cheaper Winston and Doral brands to try to optimize profits.

The new company plans to consolidate headquarters and operations in Winston-Salem, N.C., RJR's current home. The merger will end Brown & Williamson's presence in Louisville, Ky., where it has been based since the late 1920s. B&W's 460 employees in Louisville will either lose their jobs or be offered transfers to North Carolina, spokesman Mark Smith said.