RICHMOND, Va. – Earlier today, Reynolds American Inc. announced that it will acquire Lorillard Inc. in a cash-and-stock deal worth about $25 billion.

The deal combines Reynolds' Camel and Pall Mall cigarettes with Lorillard's popular Newport menthol brand to create a more powerful No. 2 to U.S. industry leader Altria Inc.,  maker of Marlboro, according to a report from the Wall Street Journal. Reynolds expects to have more than $11 billion in revenue and about $5 billion in operating income after the deal.

Additionally, Reynolds American said it reached a deal to sell the Kool, Salem, Winston, Maverick and Blu eCigs brands, and other assets, to Imperial Tobacco Group $7.1 billion in cash. Selling these brands is aimed at easing the antitrust scrutiny that the Reynolds-Lorillard deal may face.

The potential combination comes as tobacco majors try to increase scale and cut costs amid a year-long decline in U.S. cigarette consumption, including an estimated 4% contraction last year, even as profits remain robust. Two rare pockets of growth in the $100 billion U.S. tobacco market are e-cigarettes and menthol cigarettes. Lorillard is the market leader in both.

According to WSJ, The potential tie-up faces significant risks, including tough antitrust scrutiny. The U.S. Food and Drug Administration is also weighing a possible crackdown on menthol cigarettes, which fuel more than 80% of Lorillard's sales, after the agency banned all other tobacco cigarette flavors in 2009.

Reynolds and Lorillard have a combined stock-market capitalization of more than $50 billion. Altria has roughly 50% of the U.S. cigarette market. Reynolds and Lorillard have roughly 25% and 15% U.S. market shares, respectively, before any divestitures.

Lorillard's crown jewel is Newport, whose share of the U.S. cigarette market rose from 9.7% in 2008 to 12.2% last year, trailing only Marlboro, according to Euromonitor. The leading menthol brand also skews younger than most brands, giving Lorillard a 22.5% share of consumers aged 18 to 25, RBC Capital Markets recently estimated.

Imperial Tobacco, which has around a 3% share of U.S. cigarette sales, largely behind its USA Gold discount brand, is being enlisted to allay antitrust concerns and help finance the deal.