U.S. tobacco company RJ Reynolds RAITH.UL is exploring a bid for rival Lorillard Inc LO.N, the Financial Times reported, citing people familiar with the situation.
The deal is expected to value Lorillard Inc, known for its Newport menthol cigarettes, in excess of $20 billion, the paper reported.
Lorillard shares jumped about 10 percent to $54.07 in afternoon trading on the New York Stock Exchange, valuing the company at about $19.6 billion.
RJ Reynolds has appointed investment bank Lazard to explore the deal but it is unclear if the company is planning to buy all of Lorillard or a part of it, the paper reported. (link.reuters.com/sas37v)
A deal could give RJ Reynolds, whose brands include Camel and Kool cigarettes, more than 35 percent of the North American market, the paper said.
RJ Reynolds and its largest shareholder British American Tobacco (BATS.L) declined to comment. BAT, which sells Lucky Strike and Kent cigarettes, owns about 42 percent of RJ Reynolds.
Lorillard could not immediately be reached for comment.
Most U.S. cigarette companies are grappling with declining sales due to government regulation and health-aware consumers and are venturing into the fast-growing electronic cigarettes market.
(Reporting by Tasim Zahid in Bangalore; Editing by Saumyadeb Chakrabarty)