NEW YORK (CNN/Money) - R.J. Reynolds Tobacco Holdings Inc. the nation's No. 2 cigarette maker, has held talks about possibly buying No. 3 Brown & Williamson Tobacco Corp., according to a published report.

The Wall Street Journal reported Wednesday that the talks have been in fits and starts, and it said a deal appears far from imminent. Under the discussions, R.J. Reynolds (RJR: Research, Estimates) would use its stock to buy Brown & Williamson, a unit of British American Tobacco PLC (BTI: Research, Estimates), which would make BAT a major RJR shareholder, and give it a continued presence in the U.S. market.

Any deal would face significant regulatory hurdles, as the two companies now control about a third of the U.S. market, just behind the nearly half now controlled by Altria Group's (MO: Research, Estimates) Philip Morris USA unit. BAT would also face a significant capital gain tax hit if it sold Brown & Williamson, which it has held since 1927.

The paper said the aim of such a deal would be to cut marketing and manufacturing costs, rather than growing market share. It said the talks are a sign of problems faced by the companies due to tough price competition from deep-discount brands and an aggressive marketing push by Philip Morris.

The paper said that RJR, maker of Camel and Winston brand cigarettes, would not comment on the report of talks.

It quoted a BAT spokesman, Dave Betteridge, as saying, "Apart from saying we're interested in acquisitions and further consolidation in the industry, we don't discuss the merits of any of the companies out there." He added that BAT had "no plans and ambitions to leave the U.S. business. We've been quoted a number of times saying you can't be a global business and not be in the U.S." BAT includes Lucky Strike, Pall Mall, Dunhill and Kent.