Imperial Tobacco in talks to acquire Reynolds, Lorillard brands

Imperial Tobacco, the world's fourth-largest tobacco group, said today it was in talks with Reynolds and Lorillard for the acquisition of certain assets and brands owned by the US tobacco companies in the event of a merger between them.

The two companies were earlier reported by Reuters to be in advanced talks about a deal that would merge the No 2 and No 3 US cigarette makers (See: RJ Reynolds mulls stake in $20-bn rival Lorillard Inc: Report).

Imperial said the US remained one of the world's largest and most profitable cigarette markets, adding it would proceed with an acquisition only if its terms met strict transaction criteria.

According to Reuters' June report, Imperial, known for Gauloises and Davidoff cigarettes, was evaluating a deal for assets likely to be divested from the two US tobacco companies.

According to some analysts, a potential divestiture could top $5 billion and could include Reynolds brands like Kool and Salem.

The acquisition of sizable assets from the US tobacco makers would give Imperial additional scale in a competitive and declining US tobacco market, roughly half of which was controlled by Marlboro cigarette maker Altria Group Inc, according to commentators.

British American Tobacco owns a 42-per cent stake in Reynolds (BAT shares rise on speculation of funding Reynolds' bid for Lorillard).

The maker of Gauloises cigarettes would only proceed with a deal if the terms met its ''strict transaction criteria,'' Imperial said in a statement, in response to press speculation.

Imperial had lined up $7 billion to buy some brands that Lorillard and Reynolds would possibly have to sell off to address any concerns raised by the US regulator, people with knowledge of the matter said yesterday, Bloomberg reported.

Reynolds, the producer of Camel cigarettes, was closing in on a purchase of Lorillard and might announce a deal as soon as next week with the blessing of British American Tobacco Plc (BATS), according to the people.

''There can be no certainty as to the terms upon which any acquisition or related debt financing may be agreed or whether any transaction will take place,'' Imperial Tobacco said.