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Reynolds American and Lorillard Tobacco Confirm Merger Talks

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TWC News: Reynolds American and Lorillard Tobacco Confirm Merger Talks
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WINSTON-SALEM -- It's a big day for Winston-Salem, and a potentially dreary day in Greensboro.

Winston-Salem's Reynolds American and Greensboro's Lorillard confirmed long-speculated merger talks on Friday.

Reynolds is trying to buy out Lorillard, meaning possible lost jobs or facility closures in Greensboro.

Company releases said British American Tobacco, who already owns part of RAI, and Imperial Tobacco would back Reynolds in buying Lorillard.

BAT and Imperial would also buy parts of the two companies.

Anti-trust law sources said this is a move to avoid an anti-trust lawsuit. But according to anti-trust lawyers, here's what happens next: Because of the size of the merger, they may still trigger a lawsuit.

While they juggle that, the companies have to get approval from the Federal Trade Commission and the Securities and Exchange Commission.

If it all goes their way, they could make a $15 billion company. However, according to one report, it could all go up in flames.

An analyst paper from Cowen and Company said “we don't think it makes financial sense.”

Lorillard's earnings, according to the report, have surged to 12 times what the company reported when talks allegedly started.

The analysts think Reynolds earnings per share would drop 30 percent, and regulators would force the company to sell Camel, one of its most profitable brands.

Though one Wells Fargo analyst thinks a merger would make both companies better off, neither company responded to requests for comment.

Wells Fargo analysts think Reynolds will have to pay about $75 per share for Lorillard.

Lorillard closed Friday up about five percent, at $66.01. Reynolds closed down less than one percent, just under $62.

A previous version of this article noted the FDA would also have to approve the merger. An FDA spokesperson says that is not the case. The error was due to a conversation with an anti-trust lawyer, in which he said relevant oversight agencies have to approve of mergers.

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