Lorillard Inc., the third-largest seller of cigarettes in the U.S., jumped the most in two years in New York trading on speculation that Reynolds American Inc. will make a bid for the company.

Reynolds has hired the investment bank Lazard to explore a deal, the Financial Times reported today. The purchase price could be more than $20 billion, the FT said, citing unidentified people familiar with the situation. It’s unclear, though, if Reynolds plans to bid for the whole company, the paper reported.

The companies are the biggest sellers of tobacco in the U.S. after Altria Group Inc., and a deal would combine Reynolds brands such as Camel and Pall Mall with Lorillard’s Newport and Maverick. Newport is the nation’s top-selling menthol cigarette, according to the company’s website.

Lorillard shares jumped 9.3 percent to $53.61, marking the biggest one-day gain since February 2012. Before today’s surge, the stock had declined 3.2 percent this year.

Robert Bannon, a spokesman for Greensboro, North Carolina- based Lorillard, and Bryan Hatchell, a spokesman for Winston- Salem, North Carolina-based Reynolds, both declined to comment on rumor and speculation.

Reynolds American is 42 percent owned by British American Tobacco Plc, the London-based cigarette giant. A standstill agreement barring the British company from increasing its stake ends in July. That could open the door to the companies working closer together amid a broader push for industry consolidation.

Declining Industry

U.S. tobacco companies are grappling with declining smoking rates, sales taxes and a shift toward electronic cigarettes. Reynolds American Chief Executive Officer Daniel Delen said last month that U.S. cigarette unit volumes will decline by about 3.5 percent in 2014 -- in line with a long-term trend.

Lorillard was founded in 1760 and calls itself the oldest continuously operated tobacco company in America. Aiming to capitalize on electronic-cigarette growth, the company acquired Blu eCigs in 2012 and Skycig in 2013. Blu eCigs accounted for almost half of total domestic e-cigarette sales in the fourth quarter, the company said last month.

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