BAT to leapfrog Philip Mor­ris

Bri­tish pound surges on back of trade-deal vote Buy­ing rest of Reynolds

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

BRI­TISH Amer­i­can To­bacco (BAT) is spend­ing $49.4 billion (R671bn) as it seeks to get a real foothold in the grow­ing global vapour mar­ket.

The com­pany said yes­ter­day that it was mov­ing ahead with a deal to buy the 57.8 per­cent stake it did not al­ready own in Reynolds Amer­i­can for $49.4bn as it looks to new gen­er­a­tion tech­nol­ogy for future growth.

The trans­ac­tion would see BAT, which has held a 42 per­cent stake in Reynolds since 2004, be­com­ing the largest listed to­bacco com­pany in the world, leapfrog­ging Philip Mor­ris In­ter­na­tional.

The trans­ac­tion brings to­gether brands such as Dun­hill, Roth­mans and Camel cig­a­rettes un­der the same roof. It also adds a key e-cig­a­rette el­e­ment to its port­fo­lio.

To­bacco com­pa­nies have spent bil­lions of dol­lars in re­cent years as they jos­tle for a su­pe­rior mar­ket share of the lu­cra­tive e-cig­a­rettes mar­ket. Ac­cord­ing to Bloomberg In­tel­li­gence, the e-cig­a­rette and vapour mar­ket is ex­pected to be worth $15bn by 2019, a mas­sive jump from the $5.2bn it was val­ued at in 2015.

Kings­ley Wheaton, the man­ag­ing di­rec­tor of next-gen­er­a­tion prod­ucts at BAT, said the less risky al­ter­na­tive prod­ucts of­fered the com­pany with op­por­tu­ni­ties to fur­ther grow its busi­ness, apart form tra­di­tional cig­a­rettes.

BAT had pre­vi­ously said it had in­vested £500 mil­lion (R8.18bn) in re­search­ing and devel­op­ing a range of prod­ucts for con­sumers look­ing for less risky al­ter­na­tives to cig­a­rettes.

Chief ex­ec­u­tive Ni­can­dro Du­rante said the com­pany was ex­e­cut­ing its strat­egy of de­liv­er­ing strong re­sults and re­turns for its share­hold­ers while investing in future growth ar­eas.

“Our com­bi­na­tion with Reynolds will ben­e­fit from util­is­ing the best tal­ent from both or­gan­i­sa­tions, it will cre­ate a stronger, global and new gen­er­a­tion busi­ness with di­rect ac­cess for our prod­ucts across most at­trac­tive mar­kets in the world,” Du­rante said.

The trans­ac­tion would be fi­nanced in two ways: $24.4bn in

The shares that BAT did not al­ready own of Reynolds Amer­i­can

cash and $25bn in BAT Amer­i­can De­pos­i­tory Re­ceipts.

The com­pany said the cash com­po­nent of the trans­ac­tion would be fi­nanced by a com­bi­na­tion of ex­ist­ing cash re­sources, a new bank credit line and the is­sue of new bonds.

The par­ties said that the deal was ex­pected to be con­cluded dur­ing the third quar­ter of this year, sub­ject to reg­u­la­tory ap­provals.

In 2015, BAT ac­quired Pol­ish e-cig­a­rette com­pany CHIC Group for an undis­closed amount.

Reynolds ex­ec­u­tive chair­man Su­san Cameron said the deal would al­low the com­pany to of­fer bet­ter al­ter­na­tive prod­ucts.

“This com­bi­na­tion will cre­ate a truly global to­bacco com­pany with mul­ti­ple iconic brands, and a world class pipe­line of next-gen­er­a­tion vapour and to­bacco-heat­ing prod­ucts,” Cameron said.

Reynolds owns Vuse Dig­i­tal Va­por Cig­a­rette.

Philip Mor­ris last year launched a non-burn­ing cig­a­rette in the UK, iQos.

The com­pany, which owns brands such as Marl­boro and Ch­ester­field, had said it had in­vested $3bn in the iQos.

BAT shares closed 1.57 per­cent lower on the JSE at R770 yes­ter­day.

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