BAT offers to buy US tobacco firm Reynolds in $47 billion deal
LONDON: British American Tobacco has offered to buy out US cigarette maker Reynolds American Inc in a $47 billion takeover that would create the world’s biggest listed tobacco company with brands including Newport, Lucky Strike and Pall Mall.
The cash-and-stock deal would mark the return of BAT to the lucrative and highly regulated US market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.
It would also give the British company - which has been bolstered by a strong share price since the country voted to leave the European Union - more premium brands such as Camel, which it can sell in countries like Russia and Turkey where demand for Western cigarettes is still growing.
The marriage would also unite each company’s efforts in the fast-developing world of e-cigarettes, which the companies say are less dangerous than smoking - a habit that kills about six million people worldwide each year. A Reynolds takeover by BAT, which already owns 42 percent of the US group, has long been seen as part of an inevitable wave of global consolidation in a mature industry. Yet the timing, less than three weeks before a US presidential election, was unexpected. “This proposed deal manages to be both entirely expected and a surprise,” Euromonitor analyst Shane MacGuill said. The completion of last year’s purchase by Reynolds of Lorillard and the current relative valuations of the two companies’ shares were the main triggers, two sources close to the situation told Reuters.
They referred to a gain in BAT’s stock since Britons opted for Brexit in June and a fall for Reynolds, which brought their trading multiples closer together. However in dollar terms, BAT’s share performance is less pronounced.
“This is simplifying the structure by taking out the majority stake BAT doesn’t already own,” one source said, adding: “It’s always been on the cards.” After the Brexit vote, shares in BAT soared to all-time highs as investors bet the falling pound would lift the value of overseas revenue for UK-based companies like BAT, which do most of their business outside the country.
The pound has lost about a fifth of its value against the dollar since the EU referendum on June 23, pushing up the cost of the cash element of overseas purchases by UK-based firms. But between the referendum day and Thursday this week, when BAT decided to act, its shares had gained 12 percent, while Reynolds’s stock was down 7 percent. This has increased the value of the share element of the offer. With little geographic overlap and therefore limited antitrust issues, this deal is also a lot simpler than another oft-speculated deal - that BAT would take over British rival Imperial Brands, the source added. Imperial shares were up 3 percent, with one analyst saying a general reignition of consolidation in the industry may be outweighing the fact that BAT is now unlikely to bid for its rival in the near term.
Reynolds, based in Winston-Salem, North Carolina, acknowledged receipt of the unsolicited offer, which a different source said was decided on last night. It was made public immediately, as required by US securities regulators in cases where the buyer is a big shareholder. — Reuters