Reynolds-Lorillard Merger Vote Confirmed for Jan 28

Source from:  Zacks Investment Research, Inc. 09/15/2015

The much-hyped merger between tobacco majors Reynolds American Inc. and Lorillard Inc. has been facing several obstructions from anti trust authorities. It has been delayed to a great extent due to several legal issues. However, as per media reports there is good news for investors, as the shareholders have confirmed to vote on Jan 28, 2015 for the pending merger.

The voting was delayed due to a conflict between Beatrice Corwin Living Irrevocable Trust and the two tobacco biggies. The Trust had filed a lawsuit against the two companies demanding full disclosure regarding the merger before the shareholders vote took place. According to media reports, the dispute was resolved on Jan 17, following which the voting schedule was confirmed.

Reynolds has also clarified issues raised by the plaintiff regarding technology sharing agreement between Reynolds and U.K.-based British American Tobacco (BTI - Snapshot Report), which owns roughly 42% stake in Reynolds.

In July 2014, the owner of Camel brand cigarettes confirmed talks regarding the merger. The possible takeover required the consent of BTI, because the agreement might dilute its interests. Reynolds hired Lazard Ltd. as its financial advisor for the merger.

Antitrust authorities decided to scrutinize the pros and cons of the amalgamation further. In this light, the two companies have been asked by the Federal Trade Commission (FTC) to submit additional information regarding the merger in Aug 2014.

The acquisition, if materialized, is expected to consolidate the tobacco industry and increase growth opportunities for Reynolds. The merger will also bring brands like Newport and Camel under one banner. Reynolds currently carrying a Zacks Rank #2 (Buy), is geared to cement its position in the e-cigarette category with the nationwide distribution of its flagship e-cigarette brand Vuse.

Moreover, Lorillard's solid presence in the profitable e-cigarette market with blu eCigs (acquired in Apr 2012) and the U.K.-based SKYCIG (acquired in Oct 2013) brands will help Reynolds gain share in the e-cigarette category.The amalgamation is also expected to pose threat to the growing market share of another tobacco major, Altria Inc. Enditem