The Young and Poor Are Keeping Big American Tobacco Alive

By:  Roberto A. Ferdman

Big American tobacco wants to get bigger in America.

Reynolds American Inc., which sells both Camel and Pall Mall cigarettes, has agreed to acquire rival and Newport menthol-maker Lorillard for an estimated $27.4 billion. If approved, the deal will effectively combine the portfolios of two of the country's largest cigarette companies—as of last year, Reynolds and Lorillard controlled roughly 26 percent and 14 percent of the U.S. market, respectively—and send a number of brands to the smaller but still significant player Imperial Tobacco Group.

"The deal strengthens Reynolds position in the US, supplying them with Newport’s excellent brand equity and establishes Imperial as a viable third force in the world’s third largest cigarette market by volume," Shane MacGuill, Tobacco analyst at Euromonitor International, said in an interview.

The shuffle atop American tobacco is a sign that consolidation might be the industry's best way to cope with the country's growing disinterest in cigarettes. It also nods to a few areas of potential growth, most notably menthol cigarettes, for which sales have proven comparatively resilient—Newports, a menthol brand, is second only to Marlboro in U.S. sales.