Under the deal, Reynolds agreed to pay $68.88 a share in cash and stock, presenting a premium of 2.5 percent to Lorillard's Monday closing. (Click here to see the latest quote.)
As part of the transaction, U.K. based British American Tobacco will also buy new shares in Reynolds so that its stake in the company remains at 42 percent.
Reynolds also said it would sell its Kool, Salem, Winston, Maverick and blu eCigs brands and other assets to Imperial Tobacco Group for $7.1 billion in cash.
Reynolds, which also owns Camel, is the second-largest U.S. tobacco company by sales after Marlboro parent Altria. After combining with Lorillard, maker of menthol-flavored Newport cigarettes, Reynolds will be slightly smaller than Altria, which controls about half the market.