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R.J. Reynolds, British American to Merge


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R.J. Reynolds, British American to Merge


AP Business Writer

CHARLOTTE, N.C. (AP) -- R.J. Reynolds Tobacco and British American Tobacco PLC on Monday agreed to merge their American tobacco businesses, uniting the nation's second and third largest tobacco companies in an effort to blunt the attacks of sagging sales and cheaper brands.

British American is the parent company of rival Brown & Williamson Tobacco Corp. The agreement comes a month after R.J. Reynolds trimmed 40 percent of its work force.

Under the deal, a new publicly traded holding company will be formed called Reynolds American Inc., which will rank second in U.S. market share, after industry leader Philip Morris USA, a unit of Altria Group Inc.

Reynolds American Inc. will have annual sales of about $10 billion and annual domestic cigarette volume of 136 billion units, or about 30 percent of the cigarette sales in the United States.

R.J. Reynolds will pay $2.6 billion in cash and stock for a 58 percent controlling stake in the new company, RJR spokesman Tommy Payne said. BAT will own 42 percent of Reynolds American Inc. through its Brown & Williamson subsidiary.

Shares of RJR parent, R.J. Reynolds Tobacco Holdings, soared 8.4 percent, or $3.52, in the extended session, after the deal was announced. In regular trading, they gained 54 cents to close at $43.25 Monday on the New York Stock Exchange. BAT's U.S.-traded shares fell 23 cents Monday to close at $22.02.

The new company plans to consolidate headquarters and operations in Winston-Salem, N.C., RJR's current home. The full integration of the companies is expected to result in more than $500 million in annual savings.

The transaction is expected to close in mid-2004, pending approvals from regulatory authorities and RJR shareholders, as well as Internal Revenue Service rulings.

Andrew Schindler, RJR's chairman and chief executive, called the agreement a milestone for both companies that will help enhance their ability to compete in the United States.

BAT chairman Martin Broughton echoed that sentiment, saying the merger "will improve our competitive position in the most important cigarette market in the world."

RJR also said it will pay BAT $400 million cash to acquire the stock of Lane Limited, a subsidiary that manufactures several cigar, roll-your-own and pipe tobacco brands and distributes Dunhill tobacco products.

The integration of B&W's operations into RJR is expected to continue into mid-2005.

Schindler will serve as executive chairman of Reynolds American Inc. for six months after the deal closes, and then as non-executive chairman. Susan Ivey, president and CEO of B&W, will serve as president and CEO of Reynolds American Inc.

The new board of Reynolds American Inc. will consist of 13 members, including Schindler and Ivey, six directors from the existing RJR board and five directors BAT designates.

The merger follows a tumultuous period for RJR. In September, the tobacco company said it was eliminating 2,600 jobs as part of a massive restructuring designed to retreat from stiff discount-brand competition.

RJR also said it will focus future spending on premium brands Camel and Salem and will only invest enough in the cheaper Winston and Doral brands to try to optimize profits.

RJR also has slashed profit forecasts and surrendered its title sponsorship of the Winston Cup stock car racing circuit as the company tried to trim costs.

Copyright 2003 Associated

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British American is also parent company of Louisville based Brown and Williams so all of that will be under RJR. After the merger, this is where the U.S. Tobbacco companies ranking will stand.

largest - Phillip Morris - based in Richmond - popular brands (Marlboro, Virginia Slims, Benson & Hedges, Merit, Basic)

2nd largest - Reynolds American Inc - based in Winston-Salem - popular brands (Winston, Salem, Camel, Doral)

3rd largest - Lorillard Tobbaco Co. - based in Greensboro - popular brands (Newport, Kent, True, Old Gold, Maverick)

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