Cigarette makers Reynolds American Inc and Lorillard Inc. On Friday said they are in talks of a possible merger that would combine two of the nation's oldest and biggest tobacco companies.
The announcement follows media reports over the past few months about the possible combination that would create a formidable No 2 to rival Altria Group Inc, owner of Philip Morris USA, and could spur a wave of consolidation in the tobacco business.
In separate statements, the companies said no agreement has been reached and there's no assurance that one will be.
The merger discussions come as demand for traditional cigarettes declines in the face of tax increases, smoking bans, health concerns and social stigma. US cigarette sales fell about 2.6 percent last year to 285 billion cigarettes, according to market researcher Euromonitor International.
Most tobacco companies have been raising prices and cutting costs to keep profits up and are focusing on cigarette alternatives such as electronic cigarettes, cigars and smokeless tobacco for future sales growth.
Reynolds markets Camel, Pall Mall and Natural American Spirit cigarettes, as well as Grizzly and Kodiak smokeless tobacco brands. Its has about 27 percent of the U.S. Retail cigarette market. Reynolds, which is based in Winston-Salem, North Carolina, also expanded its Vuse brand electronic cigarette nationally last month.
Reynolds' profit rose 35 per cent to USD 1.72 billion last year on revenue of USD 8.24 billion, excluding excise taxes. Lorillard, which was founded before the Revolutionary War and is the oldest continuously operating US tobacco company, was spun off from Loews Corp in 2008.
The Greensboro, North Carolina-based company has about 15 percent of the retail market, bolstered by its flagship Newport cigarette brand, which commands 37.5 percent of the menthol cigarette market.
Lorillard because the first major tobacco company to jump into the e-cigarette market when it acquired the Blu e-cigarette brand in 2012. Blu now accounts for almost half of all e-cigarettes sold. Lorillard's profit rose 8.5 per cent to USD 1.19 billion last year on revenue of USD 4.97 billion, excluding excise taxes.
The move would likely mean a consolidation of the companies' operations and staff. Reynolds has about 5,200 full-time employees and produces its cigarettes at its 2 million-square-foot Tobaccoville, North Carolina, plant.
