NEW YORK — Reynolds American agreed Tuesday to buy its smaller rival, Lorillard, for $27.4 billion, uniting two of the country’s largest tobacco producers in a bet that bigger is safer in a declining industry.
Reynolds will pay $68.88 in cash and stock per Lorillard share and assume its debt.
Two other companies are involved in the transaction. Imperial Tobacco Group will pay $7.1 billion for several brands — including Kool, Salem and Winston cigarettes and Blu e-cigarettes — and acquire a former Lorillard manufacturing plant that employs about 2,900 people in Greensboro, N.C.
And British American Tobacco, which already owns 42 percent of Reynolds, will spend about $4.7 billion to buy additional shares to maintain that level of ownership in the combined company and to help finance the deal.
The combination will reshape America’s tobacco industry as companies grapple with a decades-long drop-off in smoking. Buying Lorillard will make Reynolds a stronger competitor to Altria Group, whose Marlboro brand alone accounts for nearly half of all US cigarette sales.
Perhaps more important, the deal will give Reynolds a foothold in one of the fastest- growing products in the industry: menthols. Lorillard owns Newport, the best-selling brand of menthols, which represent roughly 12 percent of the overall cigarette market.
The combined company’s flagship brands also will include Camel, Pall Mall, Natural American Spirit cigarettes, and Grizzly smokeless tobacco.
And the sale of some brands to Imperial, whose offerings include Galouises, will make it the third-biggest cigarette maker in the United States. A deal involving Imperial had long been viewed as an important way to persuade antitrust regulators to approve any merger of Reynolds and Lorillard.
“This is a great opportunity to transform our US business and secure a significant presence in the world’s largest accessible profit pool,” Alison Cooper, Imperial Tobacco’s chief executive, said in a statement.
Imperial expects to absorb much of Lorillard’s sales force as part of the deal.
Somewhat surprisingly, the combined Reynolds-Lorillard will sell Blu, one of the leaders in the booming e-cigarette market, to Imperial as part of the deal.
Imperial said it planned to pursue growth of the Blu brand internationally. Blu was introduced in Britain this year by Lorillard.
Last month, a Reynolds subsidiary, R.J. Reynolds Vapor, announced plans to begin nationwide sales of its own e-cigarette, known as Vuse. It is now sold in about 15,000 stores.
As part of its investment, BAT will continue to share technology with the combined company for the development and commercialization of next-generation tobacco products, including vapor products.
In a conference call Tuesday, Susan Cameron, Reynolds’ chief executive, called Vuse a “game changer.” Since it was introduced in Colorado last year, Vuse has grown to take a 17 percent share of the e-cigarette market in that state.
“We are very confident that Vuse can continue to compete with Blu,” she said
Cameron will head the combined company, while Murray Kessler, Lorillard’s chairman, will join its board.
Lorillard shareholders will receive $50.50 in cash and 0.2909 of a share of Reynolds stock for each Lorillard share. They will own about 15 percent of the combined company.
The combined company expects to achieve about $800 million in annual cost savings.
The deal is subject to regulatory and shareholder approval and is expected to be completed in the first half of 2015.
The new company will have geographic diversity. Reynolds has had strong sales in the West, while Lorillard has been stronger in the East.
Analysts have said the deal could spur other mergers, particularly as established manufacturers seek to gain ground in e-cigarettes. The outlook for traditional tobacco appears dimmer. Though still big — together, Reynolds and Lorillard had $13 billion in revenue last year — the number of Americans who smoke has fallen sharply over five decades. US statistics show about 18 percent of adult Americans smoke cigarettes, compared with 43 percent in 1965.
One potential hurdle for Reynolds is whether the government decides to crack down on menthols. The Food and Drug Administration has said that it considers that flavor of cigarette to be more harmful and has signaled it might seek greater restrictions on sales.