The U.S. government may try to block R.J. Reynolds Tobacco Holdings Inc.'s proposed $3-billion acquisition of Brown & Williamson Tobacco Corp. after antitrust enforcers concluded that the combination would stifle competition, people familiar with the matter said.
Federal Trade Commission lawyers have recommended that the agency challenge the plan by R.J. Reynolds, the second-largest U.S. tobacco company, to acquire the No. 3 company, the people said. The FTC staff is concerned that the merged company and No. 1 Philip Morris USA would control more than 80% of U.S. cigarette sales, the sources said.
R.J. Reynolds, the maker of Camel and Winston cigarettes, is counting on the takeover to bolster profit after a 30% decline in sales and a loss of almost 3 percentage points in its U.S. cigarette market share since 1999. Brown & Williamson, owned by British American Tobacco, would lose its opportunity to shed billions of dollars in potential liability in smoker suits if the combination is blocked.
"It would really be devastating for RJR, a setback for everything they have put in motion in the past year," said Coy Monk, who helps manage $115 million at Charlotte, N.C.-based Myers. The fund this year sold the 50,000 shares of R.J. Reynolds it owned after they rose 50%.