NEW YORK -- How close does the merger of Reynolds American Inc. (RAI) and Lorillard Inc. (LO) move the combined company to tobacco-industry leader Altria/Philip Morris USA (PM USA)? A merger model created by Wells Fargo Securities outlines the two companies'--plus Imperial Tobacco's--likely cigarette share of the market in terms of menthol/nonmenthol and premium/discount cigarettes before and after the deal announced on July 14.
Not surprisingly, the real challenge comes in menthol cigarettes.
Current Snapshot
Estimated Market Share by Menthol vs Non-Menthol
| Menthol | Non-Menthol | Total | |
| PM USA | 26% | 57% | 47% |
| Reynolds | 24% | 24% | 24% |
| Lorillard | 40% | 3% | 14% |
| Imperial | 2% | 9% | 5% |
| Other | 7% | 10% | 9% |
Estimated Market Share by Premium vs Discount
| Premium | Discount | Total | |
| PM USA | 61% | 13% | 47% |
| Reynolds | 19% | 37% | 24% |
| Lorillard | 17% | 7% | 14% |
| Imperial | 0% | 18% | 5% |
| Other | 4% | 24% | 9% |
Pro Forma (RAI/LO Combo) Snapshot
Estimated Market Share by Menthol vs Non-Menthol
| Menthol | Non-Menthol | Total | |
| PM USA | 26% | 57% | 47% |
| RAI/LO | 64% | 27% | 38% |
| Imperial | 2% | 9% | 5% |
| Other | 7% | 10% | 9% |
Estimated Market Share by Premium vs Discount
| Premium | Discount | Total | |
| PM USA | 61% | 13% | 47% |
| RAI/LO | 36% | 44% | 38% |
| Imperial | 0% | 18% | 5% |
| Other | 4% | 24% | 9% |
Pro Forma (RA/LO Combo) Snapshot With RAI Brands Sold to Imperial (Commonwealth)
Estimated Market Share by Menthol vs Non-Menthol
| Menthol | Non-Menthol | Total | |
| PM USA | 26% | 57% | 47% |
| RAI/LO | 56% | 24% | 34% |
| Imperial | 11% | 12% | 10% |
| Other | 7% | 10% | 9% |
Estimated Market Share by Premium vs Discount
| Premium | Discount | Total | |
| PM USA | 61% | 13% | 47% |
| RAI/LO | 30% | 44% | 34% |
| Imperial | 6% | 18% | 10% |
| Other | 4% | 24% | 9% |
Source: Nielsen Scantrack enhanced AOC, company reports and Wells Fargo Securities LLC estimates