Reynolds tobacco agrees to buy rival in $27.4B deal

Camel, a Reynolds American brand, and Newport, a Lorillard brand, cigarettes are displayed for sale on Tuesday in Doral, Fla. Reynolds will buy its smaller rival Lorillard for $27.4 billion.

RICHMOND, Va. — Reynolds American Inc. agreed Tuesday to buy its smaller rival, Lorillard Inc., for $27.4 billion, uniting two of the country’s largest tobacco producers in a bet that bigger is safer in a declining industry.

Under the terms of the deal, Reynolds will pay $68.88 in cash and stock for every Lorillard share and assume its debt. The deal creates a formidable No. 2 tobacco company in the United States behind Altria Group Inc., owner of Philip Morris USA.

Two other companies also are involved in the complicated transaction. The U.K.-based Imperial Tobacco Group will pay $7.1 billion for several brands — including Kool, Salem, and Winston cigarettes, and Blu ecigarettes — and acquire a former Lorillard manufacturing plant that employs about 2,900 people in Greensboro, N.C.

And British American Tobacco, which already owns 42 percent of Reynolds, will spend about $4.7 billion to buy additional shares to maintain that level of ownership in the combined company and help finance the deal.

The long-awaited combination, over a year in the making, will reshape America’s tobacco industry as companies grapple with a decades-long drop-off in smoking. Buying Lorillard will make Reynolds a stronger competitor to the Altria Group, whose Marlboro brand alone accounts for nearly half of all cigarette sales in the United States.

Perhaps more important, the deal will also give Reynolds a foothold in one of the fastest growing products in the industry: menthols. Lorillard owns Newport, the best-selling brand of menthols, which represents roughly 12 percent of the overall cigarette market.

The combined company’s flagship brands also will include Camel, Pall Mall, and Natural American Spirit cigarettes and Grizzly smokeless tobacco.

The sale of some brands to Imperial, whose offerings include Galouises, will make it the third-biggest cigarette maker in the United States. A deal involving Imperial had long been viewed as an important way to persuade antitrust regulators to approve of any merger of Reynolds and Lorillard.

Somewhat surprising, the combined Reynolds-Lorillard will sell Blu, one of the leaders in the booming e-cigarette market to Imperial as part of the deal.

Imperial said it planned to pursue growth of the Blu brand internationally. Blu was introduced in Britain this year by Lorillard.

Last month, a Reynolds subsidiary, R.J. Reynolds Vapor, announced plans to begin nationwide sales of its own e-cigarette, known as Vuse. It is now sold in about 15,000 stores.

Susan Cameron, the Reynolds president and chief executive, called Vuse a “game changer” in the e-cigarette space.

“We are very confident that Vuse can continue to compete with Blu,” said Ms. Cameron, who will head the combined company.