R J Reynolds is pooling its operations with British American Tobacco's US unit to form a powerful new player in the stateside cigarette market.

Reynolds has agreed to pay $3.2 billion (€2.7bn; £1.9bn) to take control of BAT's Brown & Williamson unit. Its shareholders will gain a 58% stake in the combined company, to be named Reynolds American, while BAT will hold the remaining 42%.

The deal unites the second and third largest tobacco firms in the US, with a combined turnover of $10bn. Reynolds American will have an estimated 32% share of the market, though this still lags the 49.6% share of Philip Morris.

BAT believes it can make costs savings of $500 million from the tie-up, while Reynolds is looking at $800m.

An added plus for BAT is that Brown & Williamson's payments under the 1998 Master Settlement Agreement with US states will become the responsibility of Reynolds American. In addition, B&W will be indemnified against current and future tobacco lawsuits, effectively distancing BAT's shareholders from the effects of such litigation.

The deal remains subject to regulatory approval.

Data sourced from: multiple sources; additional content by WARC staff