Reynolds American to buy Lorillard for $27.4 bn

US tobacco giant Reynolds American will buy smaller rival Lorillard in a $27.4 billion cash-and-stock deal, the companies said Tuesday.

The combination of Reynolds American Inc. the second-largest US tobacco company, with number-three Lorillard will create a company with over $11 billion in revenues and about $5 billion in operating income, the firms said in a joint statement.

RAI is the parent company of RJ Reynolds, maker of Camel, Pall Mall and Winston cigarettes.

Lorillard's Newport brand is the best-selling menthol brand and the second-best selling cigarette in the US.

The acquisition challenges Altria, the top US tobacco company.

RAI also announced that British firm Imperial Tobacco will purchase its cigarette brands, including Salem and Winston, and other assets for $7.1 billion in cash.

British American Tobacco, RAI's largest shareholder, backed the deal and will maintain its 42 percent stake through an investment of about $4.7 billion.