Good news for the Reynolds - Lorillard merger
Reynolds American Inc. has analyzed the acquisition of Lorillard Inc. for a few months with its attempts so far chocked off by numerous factors of which antitrust issues were the main barrier. However Imperial Tobacco Group made a recent move that could help the whole situation.
Imperial Tobacco Group plans to sell around 30 percent of ‘Compania de Distribucion Integral Logista Holdings SA’ - its unit in Madrid - next month to stack up $800 million in revenue for the industry giant. This move could put Imperial in an place to buy some of the assets from Reynolds and Lorillard that will be forced by regulators in order for the deal to happen.
‘The Logista IPO may help set the Reynolds-Lorillard deal in motion again,’ Philip Gorham, an analyst with Morningstar Inc. in Amsterdam, said in a phone interview to Bloomberg. ‘It gives Imperial a bit of leeway to help finance the brand acquisitions ‘and give its U.S. business scale.’
Lorillard and Reynolds are some of the biggest tobacco companies in America with Altria ranking 1st, and a merger of the two North Carolina neighbors might just make accommodate products as Camel and Newport cigarettes together. A deal between the two would create the biggest ever tobacco merger and a company with early sales of around $13 billion.
The tension for the merger comes with the need to capture more market share and create collaborations, as smoking declines worldwide at an alarming percent. Global cigarette consumption is expected to drop by 3% just in the next four years, following a 2.4% decrease in China and a 4% decline in the rest of the world.
Both Jane Seccombe, a representative for Winston Salem, North Carolina-based Reynolds, and Robert Bannon, director of investor relations at Greensboro, North Carolina-based Lorillard, said the companies do not comment on any merger speculation.
Imperial is better placed to buy any Reynolds-Lorillard brands that may become available than most of its competitors, including Japan Tobacco Inc. which has also been called as a potential buyer, according to Chris Wickham, a tobacco analyst at Oriel Securities in London.
Imperial is planning to sell as much as 30% of its shares in ‘Logista’, a distributor of goods to gas stations and other outlets across Europe that it acquired as part of its 2008 takeover of ‘Altadis SA’. The $800 million profit, based on the mid-point of the IPO price range, will be used to pay debt or reinvest in its business.
While it could represent a big financial stretch for Imperial to buy any brands that may appear from a Reynolds-Lorillard merger, the chance to boost the company’s presence in the United States may make a purchase worth the price.
‘The Reynolds-Lorillard deal, if it happens, could be fortuitous for Imperial if it results in Imperial picking up those brands,’ accords to Shea, at Bloomberg Industries. The brands ‘would provide it with new growth platforms in the U.S.’