US tobacco giant Reynolds American will acquire rival Lorillard to create a behemoth aimed at conquering the growing e-cigarette market.
Reynolds, the second-biggest US tobacco producer with its Camel and Pall Mall brands, will buy the US number-three Lorillard for $US68.88 ($A74.5) per share in a deal worth $US27.4 billion, including debt, the companies said.
The two companies also plan a major divestment of assets to British firm Imperial Tobacco.
Following the completion of the Reynolds-Lorillard deal, Imperial will acquire leading Reynolds and Lorillard brands, including Kool, Salem, Winston and Blu, an e-cigarette.
Imperial will pick up Lorillard's manufacturing and research site in Greensboro, North Carolina, which includes 2900 employees.
Imperial, the maker of Gauloises and Davidoff cigarettes, will pay $US7.1 billion in cash for the assets.
Reynolds will receive $US4.4 billion after taxes from the Imperial deal, which is contingent on the closing of the Reynolds-Lorillard transaction.
The divestment is intended to enable antitrust approval as both Lorillard's Blu and Reynolds's VUSE brands are e-cigarettes.
Under the terms of the cash-and-stock agreement, Lorillard shareholders will receive, for each Lorillard share, $US50.50 in cash and 0.2909 of a share in RAI stock at the closing of the transaction.
That represents a premium of 40.4 per cent to the share price on February 28, before initial media speculation on a possible tie-up.
The addition of the popular Newport brand and other Lorillard holdings "will enhance our ability to compete in the combustible cigarette and smokeless categories," said Reynolds chief executive Susan Cameron.
British American Tobacco, Reynolds's largest shareholder, backed the deal and will maintain its 42 per cent stake through an investment of about $US4.7 billion in Reynolds.
Lorillard shareholders will hold 15 per cent of the new combined company, which will have more than $US11 billion in revenues and about $US5 billion in operating income, the firms said.
Wall Street's reaction to the deal was disappointment. In early-afternoon trade, Reynolds dropped 4.3 per cent to $US60.02, while Lorillard sank 8.2 per cent to $US61.68.
Share
