RJR Wins Battle for Santa Fe Tobacco

WINSTON-SALEM, N.C. -- R.J. Reynolds Tobacco Holdings Inc. won the battle between two big tobacco companies to acquire Santa Fe Natural Tobacco Co., a small player with an affluent following, announcing a definitive agreement to buy the firm for $340 million in cash. The acquisition is expected to close in January.

Privately held Santa Fe, with a mere $94 million in annual sales, had sparked a bidding war between number-two U.S. tobacco company R.J. Reynolds and Canadian tobacco company Rothmans Inc., in part because of the appeal of its Natural American Spirit cigarettes, Reuters reported.

The battle to acquire Santa Fe took several months. RJR, maker of brands such as Winston, Camel and Doral, was forced to increase its original offer for Santa Fe by $20 million earlier this month in response to an offer of $353.7 million in cash, debt and equity from Rothmans. That offer by Rothmans, maker of Benson & Hedges cigarettes, was sweetened to beat an earlier R.J. Reynolds bid.

Santa Fe is seen as attractive in part because it is the only small cigarette maker to sell a national premium brand. In addition, the company, formed in 1982, is not subject to lawsuit settlement payments facing major tobacco firms and has image among consumers as an alternative to Big Tobacco brands, the report said.

"Santa Fe is a strong and profitable company," said Andrew Schindler, chairman and CEO of R.J. Reynolds. "Its brand, Natural American Spirit, is a highly differentiated, growing premium brand. RJR's goal is to enhance the strength of Santa Fe, the equity of Natural American Spirit and the company's relationship with its consumers."

Rothmans said Santa Fe will have to pay the Canadian company $11 million in termination fees after accepting the R.J. Reynolds deal. The company does not plan to make a higher bid, Paul Jewer, vice president for finance at Rothmans, told Reuters.