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    RJR, B&W Decision Criticized

    FTC said merger won't lessen competition in cigarette market.

    CHARLOTTE, N.C. -- An antitrust lobbying group criticized the Federal Trade Commission's decision not to oppose the merger of R.J. Reynolds Tobacco and Brown & Williamson, according to the Associated Press.

    "I remain surprised how this merger can be approved in an industry that is already highly concentrated with really only three players," said Bert Foer, president of the American Antitrust Institute in Washington, D.C. He proclaimed the FTC's unanimous approval "a disturbing trend."

    RJR's $2.6 billion purchase of Brown & Williamson, which is headquartered in Louisville, Ky., will give the resulting company -- Reynolds American -- control of about one-third of the U.S. cigarette market, putting it behind only Philip Morris USA of Richmond, Va. The new company's headquarters will be in Winston-Salem, N.C., costing Louisville 450 jobs at B&W's headquarters.

    The deal cleared a major regulatory hurdle when it was approved 4-0 Tuesday by the FTC, which said the merger was not likely to lessen competition in the U.S. cigarette market. The stock and cash transaction, announced in October, still needs approval from the Securities and Exchange Commission and RJR shareholders.

    The antitrust institute wasn't the only group caught off-guard by the FTC's easy approval.

    In a note to clients late Tuesday, Prudential Equity Group analyst Rob Campagnino expressed surprise that the FTC signed off on the deal without more of a fight. "This vote was taken in the face of what we believe were substantial concerns on the part of the FTC staff that the merger would lessen competition in the U.S. market for cigarettes," he wrote. "This result is counter to our expectations."

    RJR is to hold a 58 percent controlling stake in the new company, which is expected to generate annual sales of about $10 billion. The full integration of RJR and Brown & Williamson is also expected to result in more than $500 million in annual savings.

    R.JR is the maker of the Camel, Winston, Salem and Doral brands, while Brown & Williamson sells the Kool, Lucky Strike, GPC and Capri brands.

    RJR yesterday filed an amended proxy statement and prospectus with the SEC that reflects changes that would take place under the merger. The documents say the board of directors of Reynolds American will consist of 13 members, including six directors from the RJR board and five members designated by BAT.

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