BAT to raise its offer for Reynolds

BRITISH American Tobacco (BAT) was planning to increase its offer for Reynolds as early as this week after the US cigarette maker rejected its last bid as too low, people familiar with the matter said.

BAT shares were down 0.1 percent to close at R765.39 on the JSE yesterday. A new offer could include a bump in price as well as a higher cash component, the people said. BAT was aiming to reach an agreement by the end of the year, two of the people said.

While BAT had not decided on a final amount, the British firm was unlikely to increase the bid more than 5 percent above the last offer, the people said. No final decision has been made, and the timing could change. Spokesmen for BAT and Reynolds declined to comment.

BAT’s unsolicited cash-andstock offer valued Reynolds at $56.50 (R778.75) a share when it was announced in October, an approximately 20 percent premium to the US firm’s previous closing price.

The British company’s shares have fallen about 9.9 percent since October 20, the day before the offer was announced, reducing the bid to about $54.50. Reynolds’s stock has climbed by 17 percent over that period.

Reynolds shares rose 0.5 percent to $54.95 in New York trading at 10.12am. BAT declined 0.4 percent to 4 329 pence (R759.51) in London.

BAT estimated an outright merger would create cost synergies of about $400 million.

Reynolds was created in 2004 through a merger of BAT and RJ Reynolds Tobacco Holdings’s US businesses. That deal gave BAT a 42 percent stake in the company, which it still holds. BAT works closely with Reynolds on vapour products and helped fund Reynolds’s takeover of rival cigarette maker Lorillard last year. – Bloomberg