(USA TODAY) - As the U.S. cigarette market dips, the nation's second-largest tobacco company Reynolds American announced Tuesday that it plans to buy its third-largest one Lorillard for about $27 billion, creating a rival for market leader and maker of Marlboros Altria Group.Reynolds, maker of Camel and Pall Mall, will acquire Lorillard, maker of Newport, in a deal that is one of the largest ever in the tobacco industry and will likely face scrutiny from regulators.To allay regulators' concern, the companies said they would sell some of their smaller brands -- Reynolds will sell Kool and Salem and Lorillard will sell its e-cigarette brand blu eCigs - to Imperial Tobacco for $7.1 billion, making Imperial the third U.S. largest tobacco company.
The consolidation could boost the ability of Winston Salem, N.C.-based Reynolds to take on Alltria Group Inc., owner of Philip Morris USA, which commands 46% of the U.S. cigarette market, according to Euromonitor International. Reynolds currently has about 25% of the market and Lorillard 12%.
"Reynolds American and Lorillard have complementary core strengths and the addition of Newport to our operating companies' existing key brand portfolios – including flagship brands Camel, Pall Mall, Natural American Spirit and Grizzly – will enhance our ability to compete in the combustible cigarette and smokeless categories," said Susan Cameron, the company's president and CEO.
Cameron said she's also confident that the company's new e-cigarette, VUSE, recently rolled out nationally, offers "superior technology" and will be able to take on an expanding share of the expanding vapor market. She said the acquisition gives Reynolds "additional resources to invest in innovation, R&D and its operating companies' brands."