WASHINGTON: US cigarette maker Reynolds American Inc, in talks to buy rival Lorillard Inc, may have a hard time convincing regulators to approve the deal because of their big shares in the traditional cigarette and fast-growing electronic cigarette markets.
The two companies, which are No.2 and No.3 in the United States, are in talks to hammer out a multibillion dollar deal that would likely try to address antitrust concerns up front. “This clearly creates a duopoly. That’s huge. That raises all kinds of eyebrows,” said Andre Barlow, an antitrust expert with the law firm Doyle, Barlow and Mazard Plc. He further added, “(The deal) has a chance of being approved, depending on how big the divestiture package is”.
While Marlboro maker Altria Group dominates the shrinking US market for traditional cigarettes at around 50 percent, Reynolds, which makes the Camel and Pall Mall brands, is at about 25 percent and Lorillard, whose biggest seller is the menthol-flavored Newport, is just under 15 percent.
Lorillard is the big dog in the tiny but dynamic e-cig market, with 47 percent market share thanks to its 2012 acquisition of blu eCigs and other purchases. Reynolds and Altria only recently began expanding their e-cigarette brands nationwide. E-cigarettes are battery powered and can be used to vaporize, or “smoke” liquids that may or may not contain nicotine.
Even with such a plan, antitrust experts said winning approval for the merger would be difficult. Furthermore, regulators will balk at having two companies dominate an industry where historically if one company raised prices, others quickly follow suit rather than competing, said Hovenkamp. The practice is legal but troubles antitrust regulators. Bert Foer, head of the American Antitrust Institute, urged regulators to stop the deal. “Why should we go around creating duopolies?” he asked.
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