News Column

Shareholders file suit against Reynolds in Lorillard deal

August 14, 2014

By Robert Lopez, News & Record, Greensboro, N.C.

Aug. 14--Updated 11:55 p.m.

GREENSBORO -- A Rey nolds American shareholder has filed a lawsuit seeking to block the company's proposed acquisition of Lorillard

The lawsuit contends that public shareholders will see their ownership of the company diluted from 58 percent to 43 percent under the proposed deal, and that Reynolds' largest shareholder, British American Tobacco, will benefit at the expense of those shareholders.

The lawsuit also alleges that the company has not been forthright with shareholders about a technology-sharing agreement with British American Tobacco and that board members have various conflicts of interest.

Reynolds American spokesman David Howard said Wednesday evening that he could not comment on the specific allegations in the lawsuit. However, he said the company "is confident that we can manage these lawsuits."

Howard also said Reynolds plans on moving forward with the deal and anticipates closing on it sometime during the first half of 2015.

Robert Corwin, trustee for the Beatrice Corwin Living Irrevocable Trust of New York, filed the class-action lawsuit last week in Guilford County Superior Court.

Attorney Alan Duncan, who is representing

Corwin, declined Wednesday to elaborate on details of the lawsuit.

According to court filings, Corwin is trying to block the proposed deal until the defendants "have acted in accordance with their fiduciary duties." He also is asking for damages "in excess of $25,000," should the proposed deal close before his lawsuit is resolved.

The lawsuit was moved Tuesday to N.C. Business Court, which typically handles complex corporate cases.

Reynolds American, based in Winston-Salem, announced last month that it planned on taking over Greensboro-based Lorillard in a complicated $27.4 billion deal that involves Imperial Tobacco, which will take over Lorillard's local facilities and some brands from both cigarette-makers.

In the proposed acquisition, British American

Tobacco would retain its 42 percent ownership of the company through a $4.7 billion investment.

The lawsuit argues that public shareholders "are not given any equivalent right to maintain their position in the company."

According to the lawsuit, Reynolds has about 536 million shares of common stock outstanding.

The deal, the lawsuit contends, would grant British American "access to Reynolds' game changing e-cigarette technology without adequately compensating public shareholders."

A Wells Fargo analyst is cited in the lawsuit as telling the Winston-Salem Journal in June that e-cigarettes would generate $4 billion in annual revenue by 2021.

The lawsuit contends that Reynolds has "failed to provide necessary information" about the technology sharing and that CEO Susan Cameron provided "a non-response" when asked about it.

Among other things, the lawsuit notes that seven of Reynolds' board members are "either current or former officers, directors or attorneys" of British American Tobacco or affiliated entities, and that Cameron was once CEO of Brown & Williamson, a subsidiary of British American Tobacco.

Staff Writer Richard M. Barron contributed to this report.


Posted 4:55 p.m.

GREENSBORO -- A Reynolds American Inc. shareholder has filed a class action lawsuit in Guilford County Superior Court to block Reynolds' proposed acquisition of Greensboro-based Lorillard Inc., saying the deal would be financially bad for Reynolds shareholders.

Dr. Robert Corwin, trustee for the Beatrice Corwin Living Irrevocable Trust, of New York, filed the case to block the $27.4 billion acquisition of Lorillard.

The suit contends that Reynolds' largest shareholder, British American Tobacco, will benefit at the expense of Reynolds shareholders.

Under the Reynolds offer to Lorillard in the proposed acquisition, Lorillard shareholders will have 15 percent of the company. British American, the lawsuit says, will maintain its current 42 percent share of the new company.

Public shareholders will see their part of the company drop to 43 percent, according to the lawsuit.


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