Lorillard CEO''s Comments Lead Analyst to Believe Deal with Reynolds Likely

Source from:  Business Journal of the Greater Triad Area  07/18/2014

A top tobacco analyst said Thursday that after hearing from Lorillard Inc. CEO Murray Kessler she remains convinced a deal is likely to take place between the Greensboro-based tobacco maker and Winston-Salem-based Reynolds American Inc.

Wells Fargo analyst Bonnie Herzog said in a research report that her company hosted investor meetings with Lorillard's (NYSE: LO) management team on Wednesday in Boston and that, as expected, Kessler would not say much regarding the speculation of a potential deal with Reynolds (NYSE: RAI).

"But importantly he didn't deny it and he further acknowledged that industry consolidation could absolutely occur, noting there's always a solution to resolve anti-trust issues although it could be painful," Herzog states.

Herzog writes that "given the current market environment where both targets and acquirers are being rewarded, we continue to believe this will be a value creating transaction for both RAI and LO shareholders."

Herzog added she continues to be impressed with the strengths of Lorillard's core businesses — the leading e-cigarette brand, blu eCigs, and the company's Newport brand, which is the No. 1 selling menthol cigarette.

"After our meetings, we came away with a greater appreciation for just how strong LO's core is and that Newport Menthol truly is LO's 'heart and core,'" she said. "We continue to believe LO is very well-positioned to generate above-average industry growth given its premium focus and the health and continued brand building of Newport Menthol." Enditem