- The Washington Times - Monday, October 27, 2003

CHARLOTTE, N.C. (AP) — R.J. Reynolds Tobacco Holdings Inc. agreed yesterday to acquire Brown & Williamson Tobacco Corp., the U.S. unit of British American Tobacco PLC.

The decision comes a month after RJR trimmed 40 percent of its U.S. work force.

Under the deal, a new publicly traded holding company will be formed called Reynolds American Inc., with about 150 million shares outstanding, the companies said in a joint statement.

RJR did not specify the financial terms of the merger. A company spokeswoman did not immediately return phone messages.

By combining the second- and third-largest U.S. tobacco companies, Reynolds American Inc. will have annual sales of about $10 billion and annual domestic cigarette volume of 136 billion units — or about 30 percent of the cigarette sales in the United States.

Under the terms of the agreement, BAT will own 42 percent of Reynolds American through its cigarette-making Brown & Williamson subsidiary. Existing RJR shareholders will control 58 percent of the company through a one-for-one exchange for stock of the new company, the companies said.

The new company plans to combine its headquarters and operations in Winston-Salem, N.C., the home base of RJR. The full integration of the companies is expected to generate more than $500 million a year in savings.

The transaction is expected to close in mid-2004, pending approvals from U.S. regulatory authorities and RJR shareholders, as well as Internal Revenue Service rulings.

Andrew Schindler, chairman and chief executive of RJR, called the agreement a milestone for both companies, adding that it will enhance their ability to compete in the U.S. market.

BAT Chairman Martin Broughton echoed that sentiment, saying the merger “will improve our competitive position in the most important cigarette market in the world.”

RJR also said it will pay BAT $400 million in cash to acquire the stock of Lane Limited, a subsidiary that manufactures several cigar, roll-your-own and pipe tobacco brands and distributes Dunhill tobacco products.

The integration of B&W;’s tobacco operations into RJR is expected to take up to two years.

Mr. Schindler will serve as executive chairman of Reynolds American Inc. for a six-month period after closing and then as nonexecutive chairman.

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