Lorillard stirs investors' interests

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According to several experts Lorillard has become a takeover target for tobacco industry tycoon R.J. Reynolds due to the emerging popularity of its cigarette brands – Newport and Kent. It also has appeared to be a major object of interest since it is a less than expensive stock that might be traded up to 30% higher.


Lorillard Tobacco Company is listed in the Top 20 of the oldest US companies. It is also the oldest cigarette manufacturer in the United States. Lorillard is the third biggest American tobacco company behind Philip Morris and R. J. Reynolds. Although it produces a rather large variety of cigarette brands like Maverick, True, Old Gold, Kent, Satin, and others, the company is world-famous for its leading brand – Newport, which has been the best selling menthol cigarette during two years.

Lorillard Tobacco Company is a bright example of a one-brand company; hence its market value comprises more than $10B. Although it is smaller than main rivals, this company owns an absolutely astonishing net profit margin of over $1B and has no debts. Moreover, the revenues are supposed to reach a 7% raise this year. Despite the Americans tend to give up smoking, Lorillard earned almost 3% more last year in comparison with a 3% decline for the tobacco industry as a whole.

Lorillard best brand Newport makes a 7,8% share of the American cigarettes market, being the number two in the list of best selling cigarette brands behind Philip Morris’s Marlboro.

Many investors consider that Lorillard is heavily underestimated on Wall Street. It is also rumored that R. J. Reynolds has started private negotiations with Carolina Group, the owner of Lorillard, attempting to purchase Lorillard for a much more considerable price than its actual $62/ share. Should Reynolds succeed in their attempt, they would become the largest tobacco company in the world, leaving Imperial Tobacco and Philip Morris International behind them.

However, it is still unclear if a Reynolds/Lorillard merger would be approved by antitrust legislation. Hence, experts remind about the Miller/Coors combo that contributed to the birth of a monopoly at the beer market duopoly but managed to go through the antitrust review.

Peter Edelman, a BNP Paribas expert admitted that Lorillard is the simply the best tobacco company in the world. He stated that it should have an $80 share, since they are simply undervalued by the Wall Street.

According to several other analysts, if Reynolds succeeds in the purchase of Lorillard it would be the most outrageous deals from both financial and strategic points of view.

Yet, there is only one but enormous obstacle, namely the law introduced to the Congress. If the law would be endorsed, the Food and Drug Administration would obtain the right to regulate the cigarette industry. It could lead to imposing a ban on menthol cigarettes. However, this situation seems rather unbelievable since it has been scientifically proven that menthol-flavored cigarettes provide maximum the same health complications as regular-tasted cigarettes.

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