The U.S. Federal Trade Commission (FTC) has approved the sale of American cigarette manufacturer Lorillard Tobacco Company to long-time rival Reynolds American Inc.
The clearance by the FTC is subject to certain conditions, many of which have already been agreed upon by the two cigarette companies as part of divestiture transactions related to the acquisition.
According to reports, the commission gave its approval on the condition that Reynolds American and Lorillard will both agree to sell four brands of cigarettes--Kool, Maverick, Salem and Winston--to another competitor, Imperial Tobacco.
In 2014, Reynolds American announced its plan to purchase one of its chief competitors, Lorillard, for $27.4 billion. Reynolds is known for making Pall Mall and Camel cigarettes, while Lorillard manufactures Newport cigarettes.
As part of its intended purchase, Reynolds American said it will sell Kool, Maverick, Salem and Winston in order to avoid any possible anti-trust issues. Lorillard was set to sell off its Blu e-cigarette brand as well.
While Blu was not included in the companies' final agreement with the FTC, the sale is expected to push through.
Data released by Euromonitor International in 2013 has Altria, the maker of Marlboro cigarettes, owning 47 percent of market shares in the United States. Reynolds American followed Altria with its 26 percent shares, while Lorillard owned 14 percent.
The FTC approved the transaction by a vote of 3-2, with Democrat Terrell McSweeny, Republican Maureen Ohlhausen and Chairwoman Edith Ramirez giving their approval, and Republican Joshua Wright and Democrat Julie Brill dissenting.
Brill, in her dissenting vote, stated that the transaction will allow the remaining cigarette makers to raise their prices, while Imperial will be left too weak and small to even compete with the others.
"It is no surprise that Reynolds would ... refuse to provide a meaningful divestiture package that would replace the competition lost through its merger with Lorillard," Brill wrote.
For his part, Wright pointed out that since the assets sales were already agreed on, the investigation should be closed with no divestitures required.
The agreement between Reynolds American and Lorillard presented the Federal Trade Commission with a dilemma.
The mandate of the commission is to prevent the increase of prices due to mergers. Current U.S. public policy, however, requires that cigarettes be made more expensive to discourage Americans from smoking.
Officials from the FTC referenced two previous cigarette mergers approved in the past 20 years.
The first case was in 1994, when the FTC filed suit against the $1 billion purchase of American Tobacco by British American Tobacco. The two companies entered a settlement and the transaction was eventually approved.
The second one was 2004, when Brown & Williamson was bought out by its rival R.J. Reynolds without divestitures. The deal was noted for the use of agency resources by FTC commissioners to keep the prices of cigarettes cheap.
Photo: Joe Haupt | Flickr
