Exclusive: Imperial eyes assets from possible Reynolds-Lorillard deal-sources

Reuters

By Olivia Oran and Soyoung Kim

NEW YORK (Reuters) - Imperial Tobacco Group Plc (IMT.L) is evaluating a deal for assets likely to be divested from Reynolds American Inc (RAI.N) and Lorillard Inc (LO.N) if the two U.S. tobacco companies proceed with a proposed combination, according to people familiar with the matter.

Reynolds and Lorillard are in advanced talks about a deal that would merge the No.2 and No.3 U.S. cigarette makers, Reuters previously reported. The companies have discussed divesting some brands to address potential antitrust concerns.

U.K.-based Imperial, the world's fourth-largest tobacco group that is known for Gauloises and Davidoff cigarettes, has held discussions about acquiring these brands and is working with advisers to study the deal, the people said.

The scope of the potential divestiture is expected to be significant, and the parties may try to line up a buyer for these assets before finalising a merger, the people said, asking not to be named because the matter is not public.

Representatives for Reynolds, Lorillard and Imperial did not immediately respond to requests for comment.

Some analysts have said a potential divestiture could top $5 billion (2.98 billion pounds) and could include Reynolds brands like Kool and Salem.

Purchasing sizable assets from the U.S. tobacco makers would give Imperial additional scale in a competitive and declining U.S. tobacco market, roughly half of which is controlled by Marlboro cigarette maker Altria Group Inc (MO.N).

Reynolds, which is 42 percent owned by British American Tobacco PLC (BATS.L), and Lorillard have a market share of 27 percent and 15 percent, respectively. The proposed combination would face substantial regulatory issues.

Having an agreement in place to divest assets would be crucial to success of a deal, which is already complicated with multiple parties and various moving pieces.

British American Tobacco is part of the discussions and is expected to play a major role in backing any merger, such as helping finance Reynolds' bid for Lorillard, Reuters reported last month.

While talks have been going on for months and progressed to advanced stages, they could fall apart any time, given the complexity, people familiar with the matter have said.

(Reporting by Olivia Oran and Soyoung Kim in New York; Editing by Jan Paschal)

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