Reynolds-Lorillard: Why Investors Hate the Merger, in 8 Simple Slides

As two tobacco giants combine, investors sell off both stocks. Find out why.

Jul 15, 2014 at 12:21PM

Shares of Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI) both fell sharply Tuesday, with Reynolds stock down 5% and Lorillard stock off 7% as of noon EDT. The plunges came following a formal announcement from both companies that they would merge in a deal worth $27.4 billion. Yet with shareholders of both companies having long expected a merger after months of rumors and reports, you'd be justifiably confused in asking why the two stocks are falling so hard today.

The following slideshow has the answers you need about the Reynolds American-Lorillard merger, going into greater detail about the merger agreement and specifically pointing to some of the deal's more problematic points. Although the merger has some advantages for both companies, it also introduces some big risks, and the surprising divestitures of many of Lorillard's best-known brands to Imperial Tobacco -- including the key blu eCigs line of electronic cigarettes -- were the most shocking part of today's announcement.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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