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RJR and B&W Get Merger Approval

WINSTON-SALEM, N.C. -- The Federal Trade Commission has cleared R.J. Reynolds Tobacco Co. and Brown & Williamson Tobacco Corp. to merge, giving the thumbs-up to a union of the country's No. 2 and No. 3 tobacco companies, reported the Associated Press.

The FTC voted unanimously to close its investigation of the proposed $2.6 billion cash and stock transaction, saying the deal is unlikely to reduce competition in the U.S. cigarette market.

RJR is the maker of cigarette brands including Camel, Winston, Salem and Doral, while Brown & Williamson sells Kool, Lucky Strike, GPC and Capri brands.

FTC approval leaves permission from the Securities and Exchange Commission and RJR shareholder approval as the only hurdles remaining before the merger can be completed.

The combined companies will produce one of every three cigarettes in the United States. RJR is to hold a 58 percent controlling stake in the new company, which will be named Reynolds American Inc., with headquarters in RJR's hometown of Winston-Salem, N.C.

The merger -- announced in October -- also will end Brown & Williamson's presence in Louisville, Ky., where it has been based since the late 1920s. Company officials have said 450 workers there will either lose their jobs or be offered a transfer to North Carolina.

The merger "will enable us to achieve tremendous efficiencies, and will greatly enhance the combined companies' ability to compete effectively in the U.S. marketplace," RJR CEO Andrew J. Schindler said in a news release.

FTC chairman Timothy J. Muris and commissioners Orson Swindle and Thomas B. Leary issued a joint statement, saying their approval was based on the fact that B&W plays an increasingly minor role in the U.S. cigarette market.

They also said there are no brands or industries in which the companies are the closest competitors and that the transaction is unlikely to facilitate or enhance coordination among the major manufacturers in the U.S. cigarette market.

"Accordingly, we have concluded that this transaction is unlikely to harm consumers," they said.

The deal combines the American tobacco businesses of RJR and British American Tobacco PLC, the parent company of B&W. The new company will rank second in U.S. cigarette market share after industry leader Philip Morris USA of Richmond, Va., a unit of Altria Group Inc. The new company will have annual sales of about $10 billion. Their full integration is expected to result in more than $500 million in annual savings.

RJR spokeswoman Maura Payne said the merger helps to position RJR in a changing U.S. cigarette market. "We will be able to compete more efficiently across the entire spectrum of the U.S. cigarette market, both against major competitors and the smaller competitors which have entered the industry in the last five years," Payne said.

Earlier Tuesday, the IRS established that the merger will be tax-free for RJR and British American Tobacco shareholders, clearing another regulatory hurdle.
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