BAT and RJ Reynolds to merge US businesses

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If the deal is approved it will provide great synergies and form a broad US portolio including well-known brands Lucky Strike, Camel, Pall Mall and Winston

British American Tobacco (BAT) has announced it is to merge its US tobacco business Brown & Williamson with RJ Reynolds. The new company will be known as Reynolds American and will be the second largest tobacco supplier in the US market behind Philip Morris. The deal values the combined company at about $6bn.

BAT will hold 42% of Reynolds American, with RJ Reynolds owning the remaining 58%. Reynolds American will also acquire BAT's US smoking tobacco and cigar business Lane for $400m. BAT said the move is expected to generate a yearly saving of $500m through synergies, although the merger may be hampered by monopoly concerns. The deal also includes the transference of B&W's Master Settlement Agreement liabilities to Reynolds American, which averages $750m per year.

RJ Reynolds chairman and ceo Andrew Schindler said: ?This agreement marks a milestone for both companies. Their combination will enable us to achieve tremendous efficiencies, and will greatly enhance our ability to compete effectively in the US market.?

BAT chairman Martin Broughton commented: ?This merger will improve our competitive position in the most important cigarette market in the world. We believe that the merger is the best way to achieve our long-term strategic ambitions in the US market, while improving both our earnings per share and our cash flow in the first full year following completion.?

The combined brand portfolio of the two companies will include Camel, Salem, Winston, Doral, Kool, Lucky Strike, Pall Mall, and Barclay. North America achieved duty-free cigarette sales worth $71.4m in 2001 - 3.9% of the total global market - according to statistics from travel-retail analyst Generation.