A year after the No. 2 and No. 3 cigarette brands in the country first announced they were planning to go all-in on a $27.4 billion merger, regulators have approved an order settling charges that the deal would be anticompetitive for the U.S. cigarette market, paving the way for the merger to move forward.

The Federal Trade Commission announced today it had approved an order stipulating that betrothed tobacco companies R.J. Reynolds American Inc. – the maker of Camel and Pall Mall – and Lorillard – the maker of Newport cigarettes – divest four cigarette brands to a UK-based company.

The proposed combination of the two companies would create a formidable rival for current top cigarette company Altria Group, the maker of Marlboro. Altria currently accounts for 46% of the U.S. cigarette market, while Reynolds has about 25% and Lorillard about 12% of the market.

Back in May, the regulator proposed [PDF] that Imperial Tobacco Group will buy three brands (Salem, Kool and Winston) from Reynolds and Lorillard’s Maverick brand in order to preserve competition.

Imperial Tobacco Group currently has a competitive presence in about 70 countries, but a relatively small presence in the U.S. By taking over the four brands, the company will be a more substantial competitor for the merged companies and Altria, and become the third-largest cigarette maker in the U.S.

According to the FTC’s complaint [PDF], the merger raised significant competitive concerns as it had the potential to eliminate current and emergent competition for Reynolds and Lorillard in the U.S. market.

Additionally, the FTC determined that without divestiture there was a likelihood that the merger would unilaterally raise prices, and that coordinated interaction would occur between Reynolds and Altria.

In addition to divesting the four cigarette brands, Reynolds must divest to Imperial the Lorillard manufacturing facilities in North Carolina and provide Imperial the opportunity to hire most of the existing management, staff and salesforce.

The newly-merged companies must also provide Imperial with retail shelf space for a short period of time and provide other operational support during the transition.

FTC Approves Final Order Preserving Competition in U.S. Market for Cigarettes [The Federal Trade Commission]

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