The radical restructuring will take in Montblanc pens and the fashion houses Karl Lagerfeld and Chloe.
Richemont's plans, which were revealed just before the London stock market closed, pushed Rothmans shares up 55p to 720p and Dunhill 62p to 405p. Those prices value Dunhill at pounds 689m and Rothmans at pounds 4.3bn.
The merger will mean the unravelling of a complicated cross-shareholding structure in which Richemont owns 62 per cent of Rothmans and 90 per cent of Luxco, an unquoted company which owns 53 per cent of Cartier. Rothmans, in turn, owns 57 per cent of Dunhill and 47 per cent of Cartier.
Under the scheme Cartier Monde will become a wholly owned subsidiary of the luxury goods group. Richemont will continue to hold the majority shareholding in both new groups.
Rothmans said: 'The separate managements would be able to respond more effectively to major changes facing the tobacco and luxury goods industries.'
Shareholders will receive units representing twinned shares in London-listed holding companies and may receive a one-off bonus from any available cash resources considered surplus to the requirements of the new groups.
Analysts said the merger plans could provide a model for other companies such as BAT Industries and BTR to follow.
Nick Edwards, an analyst at Yamaichi International (Europe), said: 'It is good news for Rothmans shares and it will have a knock-on impact on BAT.'
He added that under the new FRS3 accounting rules 'there is no reason why they should not enhance shareholder value like this'.Reuse content