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LORILLARD INC Message Board

  • gm_suck_so_bad gm_suck_so_bad Mar 4, 2014 11:18 AM Flag

    Apparently Wells thinks a deal could happen for up to $80 per share

    "In a note to investors earlier today, Wells Fargo wrote that Reynolds could pay up to $80 per share for Lorillard. This estimate assumes that the combined companies could generate synergies and cost savings of around $400M, the firm noted. The potential deal could be accretive to Reynolds' earnings as early as 2015, wrote the firm, which expects regulators to approve the deal if it occurs. There are many potential reasons to own Lorillard besides the potential acquisition, according to Wells"

    That's from the flyonthewall article off of the Yahoo page.

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    • I just heard on CNBC, "Fast Money" and they confirmed an $80 take out bid was possible.

      Sentiment: Buy

    • corcoranrick@ymail.com corcoranrick Mar 4, 2014 12:42 PM Flag

      Jefferies says the deal probably won't happen...Too many BIG hurdles.

      Reynolds American Inc. (NYSE: RAI) and Lorillard, Inc. (NYSE: LO) are both positive following chatter Monday that Reynolds may make a bid for Lorillard at about $60 per share.

      Jefferies analyst Thilo Wrede commented today that a deal between the two companies might make sense, but would be highly unlikely. The analyst noted that at “a price in the low $60s range, Reynolds would pay roughly 11.5x-12.0x LTM EBITDA for Lorillard. That compares to 12.4x 2007 EBITDA that Altria (MO, $36.45, Hold) paid for UST at the end of 2008.”

      Looking at potential regulatory hurdles, Wrede said the following, “A combined RAI/LO would control roughly 41% of the U.S. cigarette category compared to 50.6% for MO and an acquisition would reduce the number of major operators from 3 to 2. We therefore would assume that such a transaction would face very meaningful anti-trust hurdles. We estimate that the Herfindahl-Hirschman Index (HHI) for the industry would increase from currently roughly 3,450 to about 4,250, well north of 2,500, the threshold where agencies generally consider a market “highly concentrated”. That makes FTC approval very unlikely in our view.” Even spinning several brands like Kool, Salem, Winston, and others, and keeping just Camel, Pall Mall, and Newport, the index would move to 3,600. That might be better for regulatory clearance, but will put into question why the deal was made in the first place with the spun brands having robust cash flow and high margins.

      Jefferies has Reynolds at Hold with a price target of $50.

 
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