Some At FTC Uncomfortable With Lorillard Inc. (NYSE:LO)-Reynolds American, Inc. (NYSE:RAI) Tie-Up

Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) seemed to be edging closer to their proposed merger as they met the U.S. regulators to look into the potential implication of the transaction. However, it is also emerging that some staffers at the Federal Trade Commission are uncomfortable with approving the proposed merger deal. The tobacco companies are expected to divest some assets to get FTC clearance for the merger.

Let this analyst breakdown the obvious technical-indicators for LO.

Reynolds American, Inc. (NYSE:RAI) is seeking to bring fellow tobacco cigarette maker Lorillard Inc. (NYSE:LO) under its armpits in a $25 billion buyout deal. The companies have met the U.S. regulators, who are weighing the options about whether to approve the proposed acquisitions or not. The FTC is particularly concerned about how the deal would tilt prices if approved.

A divided house

People with insider knowledge of FTC matters have cited that the agency is currently a dividend house on the matter of Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) tie-up. While some key members of the Commission lean towards approving the merger, other staffers are said to be raising objections.

There is no agreement that has been reached so far and even a final decision seems to be far from being made. That means that the outcome of the talks remains uncertain at best.

Reynolds is the second-largest cigarette maker in the U.S. by market share. The company controls 24% of the U.S. market share, behind Altria Group Inc (NYSE:MO), the market leader, at 47%. Lorillard Inc. (NYSE:LO) comes at a distant third-place in the pecking order at 14%. The combination of Lorillard and Reynolds is expected to elevate the latter’s market share closer to that of market leader Altria.

Need for assets divestiture

However, the FTC will require Reynolds and Lorillard Inc. (NYSE:LO) divest some of their cigarette brands to offset any potential market imbalance that their union could cause. The two cigarette companies had earlier said that they plan to offload about $7.1 billion worth of their assets to Imperial Tobacco Group PLC (ADR) (OTCMKTS:ITYBY) of the U.K.

 

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Erica

Erica

Erica is a graduate of New York University's school of Journalism. She joined US Markets Daily as a general assignment reporter in January of 2008.