The share price of Imperial Tobacco (LSE: IMT) is currently up just over 3% so far this morning, following confirmation that it’s in discussions with Reynolds and Lorillard — the second and third largest US tobacco businesses — regarding the possible acquisition of some assets and brands owned by the two US companies.
Reynolds’ brands include Winston, Kool and Salem, whilst Lorillard has Newport (the top selling menthol and second largest selling cigarette brand in the US), Maverick and Kent in its portfolio.
The announcement from Imperial comes as Reynolds is in the final stages of negotiating the purchase of Lorillard, following months of on/off discussions. A potential merger between the two companies was thwarted earlier this by concerns about competition issues, complicated by the fact that British American Tobacco has a 42 per cent stake in Reynolds. Selling some of merged group’s assets and brands to Imperial would be one way of fending off anti-trust concerns from the US government.
Imperial is keen to expand its current 3% market share in the USA, which it says “remains one of the world’s largest and most profitable cigarette markets.” However, the company says that there’s no certainty the deal will go ahead — a merger between Reynolds and Lorillard is still subject to approval by British American Tobacco, and Imperial says that it would go ahead with an acquisition “only if its terms met strict transaction criteria“.
At 2,743p, Imperial Tobacco’s share price has risen 17.5% so far this year, compared with a increase of less than 1% in the FTSE 100. And the tobacco giant is besting the index over five years, too, recording growth of 72%, versus the FTSE 100’s 62% gain in that time.
