Reynolds American (RAI) is expected to complete its acquisition of Lorillard on Friday. At the same time, Imperial Tobacco’s ITG Brands will acquire from RAI and Lorillard operating companies the KOOL, Salem, Winston and Maverick cigarette brands, and the blu eCigs electronic cigarette brand, along with other assets.
In a note posted on both the RAI and Lorillard websites, the two companies announced yesterday the completion of the acquisition’s ‘final significant condition’.
‘The federal district court overseeing a remedial order in relation to a lawsuit brought by the U.S. Department of Justice against subsidiaries of RAI and Lorillard, along with other companies, has approved the sale of certain cigarette brands and businesses to Imperial Tobacco’s ITG Brands, LLC subsidiary,’ the note said.
The approval came when Federal Judge Gladys Kessler ruled that the public corrective statements that RAI and Lorillard are required to make under the terms of her ruling in 2006 in relation to a 1999 Racketeer Influenced and Corrupt Organizations case would continue to apply as originally intended and that the public interest would not be harmed by granting the unopposed motion.
RAI and Lorillard said they expected to complete the acquisition and the related transactions on June 12, ‘subject to the satisfaction of remaining closing conditions’.
“We are very pleased to be able to proceed with this transformative acquisition,” said Susan M. Cameron, RAI’s president and CEO. “With the addition of Lorillard’s strong Newport brand, RAI’s operating companies will have brand portfolios that reflect diversification and strength across product categories and across geographies.”
Cameron said that she expects the transaction to provide RAI with additional resources to invest in innovation, R&D and its operating companies’ brands. “Investing in innovation will benefit adult tobacco consumers and wholesale and retail customers alike,” she said.
It is projected that, following the transactions, RAI will earn more than $11 billion in annual revenues and about $5 billion in annual operating income. And its operating companies will have ‘key brands’ across major industry categories: Newport, Camel, Pall Mall and Natural American Spirit in combustible cigarettes; Grizzly in smokeless tobacco; and VUSE in the vapor market.
“This is an important milestone in our ability to deliver value to our shareholders, and benefits to our customers, consumers and employees,” said Murray Kessler, Lorillard’s chairman, president and CEO. “We look forward to continuing to work with Reynolds American and Imperial Tobacco to successfully complete these transactions.”
Kessler will join RAI’s board of directors following the closure of the transactions.
‘As previously disclosed on July 15, 2014, RAI and Lorillard announced an agreement in which RAI agreed to acquire Lorillard in a cash-and-stock transaction,’ the note said. ‘At closing, Lorillard shareholders will receive $50.50 in cash and 0.2909 of a share of RAI stock for each share of Lorillard stock they own.
‘Also on July 15, 2014, RAI and Lorillard announced agreements for their operating companies to sell the KOOL, Salem, Winston, Maverick and blu eCigs brands and other assets and liabilities to a subsidiary of Imperial Tobacco Group, PLC for a total consideration of approximately $7.1 billion in cash.
‘As part of the transactions, British American Tobacco p.l.c. (BAT) will maintain its approximately 42 percent ownership in RAI through an investment of approximately $4.7 billion (based on RAI’s closing share price of $60.16 as of July 2, 2014, the same share price used to determine the stock component of Lorillard shareholders’ consideration).’
Meanwhile, in a note posted on its website yesterday, Imperial said that the US District Court for the District of Columbia had approved the sale of US cigarette brands to ITG Brands in accordance with the DOJ case involving those brands, though it did not name the brands.