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Tobacco giants Reynolds American, Lorillard in merger talks

FORTUNE — Deals made in a smoky room may be literally the case in this one: Reynolds American (RAI) and Lorillard, both tobacco companies, are reportedly considering a merger that would establish the second largest tobacco company in the US.

Reynolds manufactures cigarette brands such as Camel and Pall Mall, while Lorillard produces Newport, the leader in the menthol cigarette space. If the two combined they would only trail Altria Group — which makes the highly popular Marlboro brand — in the tobacco industry, according to a Wall Street Journal report.

The move would also allow Reynolds to enter the increasingly lucrative e-cigarette market, as Lorillard has a popular product in that space: the blu.

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U.K.-based British American Tobacco PLC would also have a say in the deal, given that the company owns 42% of Reynolds. Lorillard and Reynolds both had no comment to make on the reported deal.

It is expected that any deal would have some anti-trust implications, as the newly-merged company and Altria would control 90% of the U.S. market.