WASHINGTON – U.S. antitrust authorities on Tuesday approved R.J. Reynolds Tobacco Holdings' (RJR) bid to buy the U.S. assets of British American Tobacco (BTI), despite competition concerns expressed by some FTC lawyers.
The Federal Trade Commission (search) said its commissioners had voted 4-0 to close the agency's investigation of the deal without taking any action. One commissioner was recused.
Three of the commissioners said in a joint statement they decided not to oppose the deal because they "do not believe that the transaction is likely substantially to lessen competition in the U.S. market for cigarettes."
The FTC's approval put an end to antitrust concerns that had cast doubt over the deal.
"We are pleased with the FTC decision, which allows our proposed business combination to proceed as planned," said Andrew J. Schindler (search), chairman and chief executive of R.J. Reynolds.
R.J. Reynolds said in a statement that is still awaiting clearance by the Securities and Exchange Commission of the proxy statement for shareholders and approval from shareholders.
R.J. Reynolds has proposed buying BAT's U.S. cigarette and tobacco businesses for more than $3 billion in cash and stock, creating a stronger rival to market leader Philip Morris (MO), a unit of Altria Group Inc.
The combination of RJR and BAT's U.S. subsidiary, Brown & Williamson (search), would put brands ranging from RJR's Camel and Winston to BAT's Lucky Strike and Kool under one roof.
Advice Ignored
The commissioners' approval came over the advice of some staff lawyers at the agency, who expressed concerns that it would reduce the number of major competitors in the cigarette market.
However, Muris and the other commissioners rejected the concerns, saying BAT's Brown & Williamson subsidiary plays an "increasingly minor" role in the U.S. cigarette market, having lost a third of its market share in the last seven years.
"The company's market share greatly overstates its competitive significance," the three commissioners wrote in their opinion.
They also concluded that there was no market in which the R.J. Reynolds and Brown & Williamson are each others' closest competitors. And they said a legal settlement with state attorneys general had put the big cigarette companies at a disadvantage relative to smaller, discount cigarette companies.
A fourth commissioner, Mozelle Thompson, voted to close the investigation, but expressed reservations about how it could affect competition in the future.
Thompson said the deal would leave the top three U.S. cigarette companies with a dominant share of the market. He said there was evidence that major tobacco companies had reacted in "parallel fashion" to price increases by Phillip Morris in the past.
Thompson said he was "somewhat troubled about the possible effect of removing a [major] competitor from a market with these conditions present."
The FTC ruling came shortly after the U.S. Internal Revenue Service issued another ruling favorable to the deal, confirming that the proposed merger will be tax-free.
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