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FTC requires Reynolds and Lorillard to sell four brands

Staff writer |
Tobacco companies Reynolds American and Lorillard have agreed to divest four cigarette brands to Imperial Tobacco Group to settle Federal Trade Commission (FTC) charges that their proposed $27.4 billion merger would likely be anticompetitive.

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Reynolds markets two of the best-selling cigarettes in the country, Camel and Pall Mall, as well as Winston, Kool, and Salem. Lorillard’s flagship brand, Newport, is the best-selling menthol cigarette, which it markets along with other brands including Maverick.

Reynolds and Lorillard are the second- and third-largest U.S. cigarette makers, behind industry leader Altria Group Inc., which sells Marlboro cigarettes.

According to the FTC complaint, without the divestiture to Imperial, the proposed merger raises significant competitive concerns by eliminating current and emergent, head-to-head competition between Reynolds and Lorillard in the U.S. market for traditional combustible cigarettes

It also increases the likelihood that the merged firm would unilaterally raise prices, and that coordinated interaction would occur between Reynolds and Altria, the remaining two large competitors in an already concentrated industry.

Also, according to the complaint, new entry would be unlikely to counter the anticompetitive effects of the proposed merger. Potential new competitors would face significant barriers to entry, including declining demand, regulatory barriers, the large investment required to promote cigarette brands, restrictions on advertising, and difficulty in obtaining shelf space.

The proposed order requires Reynolds to divest to Imperial four established cigarette brands: Winston, Kool, Salem, and Maverick. Imperial is an international tobacco manufacturer with a competitive presence in about 70 countries, but a comparatively small presence in the United States.

With the acquisition of the divested assets, Imperial would become a more substantial competitor in the United States. â– 

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