Brown & Williamson parent B.A.T Industries last week acknowledged that some brand consolidation is likely if its $1 billion purchase of American Tobacco from American Brands wins U.S. regulatory approval.
"It's quite possible that we will eliminate one or two very small brands but nothing significant," said Martin Broughton, B.A.T group chief executive in London. He mentioned Riviera and Bull Durham as possible candidates for elimination.
The proposed purchase would make Brown & Williamson a significantly stronger No. 3 player in the U.S. cigarette market, boosting its share to 17.7% from 11%. Currently, Philip Morris USA has a 42.2% market share and R.J. Reynolds Tobacco Co. 30.6%.
Brown & Williamson's major brands include Kool, GPC Approved, Viceroy, Raleigh and Capri, while American Brands includes Pall Mall, Carlton, Lucky Strike, Montclair and Misty Slims.
Grey Advertising, New York, and Tatham Euro RSCG, Chicago, handle Brown & Williamson's $40 million in ad business, while LCF&L, New York, has American Tobacco's $20 million account.
The deal would give B.A.T worldwide rights to Lucky Strike and Pall Mall, which were split in 1911 when James Buchanan Duke's ownership of the American Tobacco Trust was found to violate the Sherman Antitrust Act. B.A.T's British American Tobacco unit sells the brands now outside the U.S. while American Tobacco sells them in the U.S.
Reuniting the two groups could spur increased U.S. advertising for the two former powerhouse cigarette brands.
B.A.T said the regulatory climate in the U.S., where increased federal regulation of smoking and cigarette marketing is under discussion, wasn't a big factor in its debate over whether to buy American Tobacco.
"It would be a fair point to make if we weren't there. But we are there already," Mr. Broughton said. "It's still a very profitable market.... This will make us more powerful in the market. So it strengthens our position."
Analysts say the deal would give the new entity more clout and efficiency in the U.S.
"It gives them a little more strength to fight the Big 2 and the possibility for some rationalization of brands and plants that could save money," said John C. Maxwell Jr., analyst with Wheat, First Securities, Richmond, Va. "I would think they would try to resuscitate Lucky Strike and Pall Mall, and turn them into world brands."
There was no immediate word on agency plans or consolidation.
LCF&L Chairman Charles Goldschmidt said his shop is currently hiring people to work on American Brands product and doesn't plan to alter its moves.