The deal, which requires regulatory approval
RJR will pay $2.6 billion in cash and stock and will own 58% of the new venture, Reynolds American, and will assume all legal liabilities incurred as a result of the tobacco makers' settlements with state attorneys general. British American Tobacco, which owns B&W, will oversee the tobacco brands. Reynolds American will have about $10 billion in annual sales.
RJR will also pay British American $400 million to acquire its Lane Limited, a subsidiary that manufactures several cigar, roll-your-own and pipe tobacco brands and distributes Dunhill tobacco products.
In January 2002, RJR acquired Santa Fe Natural Tobacco Co., the maker of niche cigarette Natural American Spirit, as a wholly owned subsidiary.
The merger comes as tobacco makers continue to lose ground to discount brands and industry leader Philip Morris USA, which controls about half of the tobacco market. B&W controls 10.6% of the U.S. tobacco market while RJR reaches 23%.
Advertising is handled by a variety of agencies within different holding companies. B&W recently moved Pall Mall to WPP Group's Ogilvy & Mather, Chicago, while Grey Global Group's G2 handles Lucky Strike and WPP's 141 Worldwide handles Kool. Media services for B&W brands are with Media Kitchen, an arm of Kirshenbaum Bond & Partners, New York. RJR uses Mezzina/Brown & Partners, New York, for Camel.
The companies said Andrew J. Schindler, chairman-CEO of RJR, will serve as executive chairman of Reynolds American for a six-month period after closing and then as non-executive chairman. Susan Ivey, currently president-CEO of B&W, will serve as president-CEO of Reynolds American.
Announcements regarding the balance of the executive management team will be made at a later date.