BAT to pay US$49bil for Reynolds American
Deal will create the world’s largest publicly-traded tobacco firm
GENEVA: British American Tobacco (BAT) Plc raised the cash portion of its bid for full control of Reynolds American Inc, offering about US$49.4bil in a deal that would create the world’s largest publicly traded tobacco company and unify brands such as Lucky Strike and Camel.
The cash-and-share bid values each Reynolds share at US$59.64, London-based BAT said in a statement. The new offer is US$29.44 in cash and 0.526 of a BAT share for each Reynolds share. The previous one was US$24.13 in cash and 0.5502 of a BAT share.
BAT made an unsolicited cash-and-stock offer of US$56.50 a share on Oct 21 for the 58% of Reynolds that it doesn’t already own, a 20% premium to the prior day’s close. The value of that bid had dropped as BAT shares declined following the bid.
The merger proposal is part of a wave of consolidation for the tobacco industry, which is struggling with shrinking demand for traditional cigarettes and an uncertain pathway to new technologies. Reynolds is attractive to BAT because it’s a leader in the nascent US market for e-cigarettes.
Reynolds had sought a higher bid, Bloomberg News reported Nov 15, according to people familiar with the matter.
BAT has held its current stake in WinstonSalem, North Carolina-based Reynolds since the US company was created in 2004, and the two tobacco giants are close partners. BAT estimated that the transaction would create cost synergies of about US$400mil.
Combined, the two companies would overtake Philip Morris International Inc, the maker of Marlboro, as the world’s largest publicly traded tobacco company. It also would give the London-based company a strong foothold in the United States and access to Reynolds’s leading electronic-cigarette position. China National Tobacco Corp, run by China’s State Tobacco Monopoly Administration, is the biggest tobacco company overall. BAT has been at the forefront of industry consolidation. The company spent about US$2.4bil on a buyout of its Brazilian Souza Cruz SA unit last year, and it previously part-funded Reynolds’s takeover of Lorillard Inc – a move that let BAT maintain its 42% stake in the maker of the Camel brand.