WASHINGTON (AP) — Reynolds American's proposed $25 billion acquisition of rival Lorillard has cleared a key regulatory hurdle to move closer to completing a deal that will unite some of the nation's top cigarette brands.
The Federal Trade Commission gave its consent Tuesday after wrapping up a 10-month review that concluded Reynolds' previously announced divestiture plans will be enough to preserve competition in the U.S. cigarette market. The approval was narrowly granted on a 3-2 vote of the FTC's commissioners.
Reynolds, the maker of Camel and Pall Mall cigarettes, is creating another competitor by selling its Kool, Salem, Winston, and Maverick brands to the U.K.'s Imperial Tobacco for $7.1 billion. To get the deal done, Reynolds is also selling Lorillard's dominant Blu e-cigarette brand to Imperial in addition to a Greensboro, North Carolina plant.
By making those concessions, Reynolds is still getting to keep Lorillard's best-known cigarette brand, Newport.
The Lorillard acquisition will put Reynolds in a better position to challenge Altria, the maker of Marlboro cigarettes. Combined, Reynolds and Altria will control about 80 percent of the roughly $100 billion market for cigarettes in the U.S.
Even though Reynolds is shedding some of its brands, it won't be enough be prevent market collusion aimed at increasing cigarette prices for consumers addicted to tobacco, predicted FTC Commissioner Julie Brill.
In her dissenting opinion against approving Reynolds' acquisition, Brill wrote that the deal will increase the chances of coordinated interaction between the remaining participants in the cigarette market. Brill also questioned how well Imperial Tobacco will be able to compete against its bigger rivals, given that it is buying some of Reynolds' "weak and declining" brands.
Reynolds has framed the deal as a way to cope with a long-running slide in cigarette sales as smoking is banned in more public places and more consumers eschew a habit that is known to cause cancer and other serious health problems. The Winston, North Carolina, company expects to have $11 billion in annual revenue after it takes over Lorillard, up from $8.5 billion last year.
It said Tuesday it is now awaiting final court approval of the deal, which it expects to close by the end of June.