Why Investors Hate the Reynolds-
Lorillard Merger, In 8 Simple Slides
What’s Behind Today’s Plunge?
• Yet merger talk
had circulated for
months, so what
Both Reynolds and
Lorillard shares fell
sharply today after
news of the merger.
Basic Terms of the Deal Weren’t Unreasonable
• Lorillard shareholders will receive $50.50 per
share in cash.
• They’ll also receive 29.09 shares of Reynolds
American for every 100 Lorillard shares they
• Reynolds touts deal’s premium, but compares
share prices from before merger talk began.
Total deal value is $27.4 billion, or $68.88 per share.
Reynolds Hopes for Big Benefits
• Better product balance, as
Newport adds menthol exposure.
• Synergies will help drive R&D and
innovation for new products.
• Expected to be accretive to
earnings in first year after merger.
• Cost savings will help boost strong
dividends in the future.
CEO Susan Cameron lists reasons favoring merger.
Reynolds CEO Susan Cameron. Source: Reynolds American.
But Huge Changes Were Unexpected
• Reynolds American
will keep the key
• But Imperial Tobacco
will buy several of
Lorillard’s other key
– KOOL, Salem, Winston, and Maverick will go to Imperial.
– Result: Imperial will see its U.S. market share triple.
The Biggest Blunder: Selling blu
• Reynolds is committed to its
competing Vuse brand.
• But blu is the strongest e-
cigarette brand in terms of
market share and has a
huge first-mover advantage
over Vuse and other e-cigs.
As part of the deal, Imperial will buy blu eCigs.
Reynolds Will Face Big Potential Risks
• Adverse FDA menthol decision could
crush Newport’s value to Reynolds.
• Vuse could prove unable to catch up
to blu eCigs success.
• Introduction of Imperial Tobacco as
new, bigger U.S. competitor changes
dynamics of the entire industry.
• Merger doesn’t change negative
trends in sales volume.
Source: Wikimedia Commons.
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