Tobacco giants to merge US operations
British American Tobacco and RJ Reynolds Tobacco have agreed to merge their US tobacco businesses, uniting the nation’s second and third largest tobacco companies in an effort to blunt the attacks of sagging sales and cheaper brands.
British American Tobacco (BAT) is the parent company of rival Brown & Williamson Tobacco. The agreement comes a month after RJ Reynolds (RJR) trimmed 40% of its work force.
Under the deal announced yesterday, a new publicly traded holding company will be formed called Reynolds American, which will rank second in US market share after industry leader Philip Morris USA, a unit of Altria Group.
RJ Reynolds is the maker of cigarette brands including Camel, Winston, Salem and Doral, while Brown & Williamson sells the Kool, Lucky Strike, GPC and Capri brands.
The deal vastly expands the reach of two tobacco companies that together produce about one of every three cigarettes smoked in the US. The new company will have annual sales of around $10bn €8.53bn.
RJ Reynolds will pay $2.6bn (€2.2bn) in cash and stock for a 58% controlling stake in the new company, RJR spokesman Tommy Payne said. BAT will own 42% of Reynolds American through its Brown & Williamson subsidiary.
Shares of RJR parent, RJ Reynolds Tobacco Holdings, soared 8.4% on the New York Stock Exchange after the deal was announced.
The new company plans to consolidate headquarters and operations in Winston-Salem, North Carolina, RJR’s current home. The full integration of the companies is expected to result in more than $500m (€426.9m) in annual savings.
Andrew Schindler, RJR’s chairman and chief executive, called the agreement a milestone for both companies that will help enhance their ability to compete in the US.
BAT chairman Martin Broughton echoed that sentiment, saying the merger “will improve our competitive position in the most important cigarette market in the world”.
Both companies have a rich history that dates to the late 1800s.
RJ Reynolds was founded in 1875, when 25-year-old Richard Joshua Reynolds started a chewing-tobacco manufacturing operation in the town of Winston, North Carolina. The town would later merge with the nearby village of Salem, creating the city known today as Winston-Salem.
Brown & Williamson was formed in 1893 by George Brown and Robert Williamson - brothers-in-law who both grew up in tobacco families.
