US 'seeks to block' BAT-Reynolds merger
Shareholders in British American Tobacco were left unsettled yesterday by reports that competition regulators were likely to try and block its £4bn merger with RJ Reynolds.
Shareholders in British American Tobacco were left unsettled yesterday by reports that competition regulators were likely to try and block its £4bn merger with RJ Reynolds.
Speculation has been mounting in recent weeks that investigators at the US Federal Trade Commission were coming to the conclusion that the regulator should sue to block the deal.
Shares in BAT slipped 5p in the wake of the latest reports, although at 797p they are still near their recent high of 867p. In October, when BAT announced plans to merge its US operations with RJ Reynolds, its shares soared 10 per cent and continued to rise strongly in the months following.
BAT refused to comment yesterday, declining even to reiterate the views of Martin Broughton, its chief executive, who in October said the company had an "extremely good case" to get merger approval.
However reports yesterday suggested that staff at the FTC had concluded the regulator should pursue a case blocking the deal. Susan Creighton, the competition regulator reviewing the merger, is due to announce her views by 24 June. The deal would create the second-largest US cigarette manufacturer behind Philip Morris, owned by consumer goods group Altria, which has a 49.6 per cent market share.
A combination of Brown & Williamson, BAT's US business, and RJ Reynolds would have a 32 per cent market share. The deal was couched as a way of the two companies fighting new discount cigarette brands. The merger, however, would bring together dominant brands in specific cigarette types, such as the menthol market where RJ Reynolds' Salem brand competes against Brown & Williamson's Kool brand.
There are also concerns the proposed merger would give the enlarged group too much power and make it easier to squeeze cigarette distributors to accept terms that would make it impossible for smaller cigarette companies to compete.
It is possible that the Federal Trade Commission could settle with a compromise deal that might see the enlarged group selling off certain brands where competition issues were particularly intense.
But these conditions may actually make the deal too unattractive for the two companies to pursue. The deal is also a way of ringfencing BAT from legal claims.
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