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US tobacco firms Reynolds, Lorillard in merger talks

US tobacco giant Reynolds American Inc. is in talks to buy smaller rival Lorillard, the companies said on Friday, a deal that would challenge Altria, maker of Marlboro cigarettes.

NEW YORK: US tobacco giant Reynolds American Inc. is in talks to buy smaller rival Lorillard, the companies said on Friday, a deal that would challenge Altria, maker of Marlboro cigarettes.

The companies, in separate statements confirming press speculation that they were in negotiations, emphasised that there was no assurance than an agreement could be reached.

Reynolds American Inc. "confirms that it is in discussions with Lorillard regarding a possible acquisition of Lorillard".

"The discussions are consistent with RAI's strategy of considering a variety of options to enhance shareholder value," the company said.

RAI is the parent company of RJ Reynolds, maker of Camel, Pall Mall and Winston cigarettes and the second-largest US tobacco company after Altria.

Reynolds American also owns American Snuff, Santa Fe Natural Tobacco and a manufacturer of e-cigarettes, a tar-free alternative that releases nicotine in a vapor instead of smoke, a fast-growing market.

Lorillard is the nation's third-largest cigarette manufacturer. Its Newport brand is the best-selling menthol brand and the second-best selling cigarette in the US.

The combination of Reynolds American and Lorillard would create a company with about US$15 billion in revenues.

Reynolds American said that two British tobacco companies were participating in the negotiations.

British American Tobacco, its largest shareholder, expects to support a takeover of Lorillard by subscribing for additional shares in RAI and would maintain its existing 42 per cent stake, Reynolds American said.

British cigarette maker Imperial Tobacco is involved in the talks "as a possible purchaser of brands and other assets from Lorillard and RAI".

Imperial, the maker of Davidoff, Gauloises and West cigarettes, would be prepared to pay as much as US$7 billion for the assets, according to financial news agency Bloomberg.

Reynolds American shares were flat at US$62.26 and Lorillard jumped 4.6 percent to US$65.99 in opening trade. 

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