Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Could This Massive Tobacco Merger Be More Than Just Rumor?

By Mark Reeth and Sean O'Reilly - Mar 9, 2014 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rumor has it Reynolds American is considering buying Lorillard. Could this be more than just speculation?

Rumors have been circulating this week that Reynolds American ( RAI ) is thinking of acquiring Lorillard ( LO.DL ), effectively combining the second and third largest tobacco companies in the U.S. In this segment from Thursday's Consumer Countdown, Motley Fool analyst Sean O'Reilly and Mark Reeth take a look at the tobacco business. Sean points to just how difficult organic growth in this segment in the U.S. can be with such a saturated market, and says that acquisitions may be the only option for these companies to grow.

While any acquisition here is still nothing more than speculation, Mark sees it as a deal that could soon be very necessary for Lorillard. With the company's strong specialization in menthol cigarettes, and Europe having moved to ban menthol and the FDA now weighing the evidence toward potentially making a similar move, being acquired by Reynolds American could be the safety net the company needs at just the right time. If these rumors don't materialize into an actual acquisition offer however, or if regulators decide that such a merger would create too large a company in this industry and strike the deal down, Mark says he would be staying away from Lorillard, and that Reynolds American, or the number one player in the space, Altria ( MO 0.14% ), would be much more sensible buys in his eyes today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Reynolds American Inc. Stock Quote
Reynolds American Inc.
RAI
Lorillard, LLC Stock Quote
Lorillard, LLC
LO.DL
Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$44.49 (0.14%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
633%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.