Imperial Tobacco confident on Reynolds-Lorillard deal

Imperial Tobacco expects no material changes to the $27bn Reynolds American takeover of Lorillard when US competition authorities rule on the deal that will more than triple the British tobacco company's market share in the US.

A decision on the complex three-way deal, which will see Imperial spend $7.1bn to pick up several underperforming brands including Kool, Salem and Winston from the combined Reynolds-Lorillard group, is expected from the Federal Trade Commission soon.

Although there have been suggestions the FTC could require further divestments from Reynolds and Lorillard to ensure Imperial's effectiveness as a third-place competitor, Alison Cooper, chief executive of Imperial, said she had no interest in acquiring additional cigarette brands.

"Clearly around the edges there may be things we would look at but I really don't expect any material change," she said on Wednesday.

The comments come as Imperial, the world's fourth-largest international tobacco company, reported a 4 per cent fall in revenues to £12.1bn for the six months to March 31, a figure that was hit by currency movements. On a constant currency basis, revenues rose 3 per cent.

Fighting in Iraq hit cigarette sales, the company said, with underlying tobacco volumes falling 5 per cent to 138.2bn, a slightly worse performance than in the first quarter, when the number of cigarettes sold dropped 4 per cent.

Excluding Iraq, underlying volumes were down 3 per cent, ahead of the industry, Imperial said.

Last week, British American Tobacco, which makes Lucky Strike and Dunhill cigarettes, reported a 3.6 per cent fall in volumes in the first quarter.

In the UK, which according to UBS accounts for 20 per cent of Imperial's operating profits, the company faces a host of regulatory pressures, including the introduction of standardised or plain packaging next year and the possibility of a levy on profits if Labour wins the May 7 general election.

The Conservatives have also discussed a tobacco levy, but appeared to back away from the policy at the Budget in March.

"For us it's a no brainer in terms of why a party like the Conservatives would look at it holistically and think it's not a good idea," said Matthew Philips, corporate affairs director at Imperial, who added that the company would raise its prices in the event of a levy.

Shares rose 2.2 per cent to £31.90 in early London trading as the UK's leading cigarette seller said it had reduced adjusted debt by £2bn to just over £9bn.

Imperial maintained its commitment to 10 per cent dividend increases by adding 4p to its interim dividend, bringing it to 42.8p.

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