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Barely a year into its debut as an independent company, menthol-cigarette maker Lorillard Inc. (LO) faces a round of questions on its flagship brand.

Lorillard gets more than 90% of its sales from its Newport brand of menthol cigarettes, a category that will come under fresh scrutiny this year as the Food and Drug Administration assumes oversight of the tobacco industry.

The new regulation is a twist in the tale for Lorillard, which has long been seen as a potential acquisition target. The menthol probe could have wider implications, including an impact on how potential buyers view the company.

The high-profile FDA bill - signed into law by President Barack Obama this week - calls for the formation of a special committee that will, within a year of its creation, offer recommendations on the impact of menthol-cigarette use on public health and on children in particular.

Investors' worst fears have been for a ban on menthol products, which critics say can draw teenagers to cigarettes as they make smoking more palatable. Industry experts believe a ban is unlikely. There isn't any conclusive evidence that menthol affects smoker behavior, Credit Suisse analyst Thilo Wrede said, and banning the entire category would impact state and federal governments, which benefit from tobacco taxes.

"I find it extremely unlikely that the FDA will take the drastic step of a ban," Wrede said.

It is unclear what conclusions the so-called Tobacco Products Scientific Advisory Committee, which will study menthol, will form. The group is required to give its views within a year of formation, but any recommendations it makes on controlling menthol would impact Lorillard far more than the other cigarette makers. Reynolds American Inc. (RAI) and Altria Group Inc. (MO) make menthol cigarettes as well, but Lorillard dominates the menthol category, which has held up even as overall cigarette volumes have dropped sharply in the U.S.

It would be quite likely for the government to limit the amount of menthol in a cigarette, Citigroup analyst Adam Spielman said in a research brief, adding that as long as such regulation stayed "pragmatic" it would result in little real difference to the industry. Lorillard's stance is that scientific evidence doesn't indicate that menthol cigarettes increase the known risk from smoking.

Deal speculation also has dogged Lorillard for some time. Reynolds American often has been seen as the most likely acquirer, because it could get cost benefits and its cigarette portfolio could benefit from a big brand like Newport. Reynolds and Lorillard, which was spun off from Loews Corp. (L) last year, didn't comment on deal possibilities.

"A takeout is a distinct possibility for Lorillard," Wrede said, although adding that the timing is uncertain.

Any potential acquirers might also want to weigh possible outcomes from the menthol committee's deliberations. Harsh restrictions on menthol could be a blow to Lorillard, given its huge dependence on Newport, and with a market capitalization of roughly $11.6 billion and annual sales of $4.2 billion, it wouldn't be a cheap buy.

"We think no responsible company could pay more than $13 billion while the regulatory uncertainties over menthol are so large," Citigroup's Spielman said.

Lorillard is unlikely to be bought in the next 12 months, he wrote earlier this month, also noting that antitrust regulators might make a deal difficult.

Wrede said any "acquirer will have to have a high level of confidence that menthol will not be banned." However, he adds that a potential buyer that feels a certain sense of urgency, and that has a good sense of which way the winds are blowing in Washington, may not necessarily wait until it has final clarity from the FDA.

-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com