Tobacco firm’s £38bn deal bid
BRITISH American Tobacco has sparked a £38billion bid to create the world’s biggest listed tobacco company by taking full control of its US rival Reynolds American.
The FTSE 100 giant, whose brands include Dunhill and Lucky Strike, already owns 42.2 per cent of Camel owner Reynolds, having folded its US subsidiary Brown & Williamson into Reynolds 12 years ago.
But a cash and shares deal would set BAT apart from its major rivals by giving it a leading presence in American and international markets.
It would enable the companies to join forces in the development of e-cigarettes and provide more premium brands for BAT to sell into markets such as Russia and Turkey.
BAT shares initially jumped to 5003, but closed 137p lower at 466p amid suggestions it would have to raise its offer, which was pitched at a 20 per cent premium to Reynolds’ closing share price.
BAT chief executive Nicandro Durante, pictured, said: “We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US market. The acquisition of Lorillard in 2015 has further strengthened Reynolds’s business. The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next generation products company.”
BAT’s ambitious move is fuelled by cheap debt and a stronger share price since the Brexit vote. BAT has benefited as a multinational from generating a big part of its income abroad in foreign currencies.
Guy Ellison at Investec said: “The timing is a surprise, but the strategic rationale makes perfect sense, pivoting BAT further towards the high value US market, consolidating some strong brands and Reynolds’ position in next generation tobacco.
“Despite modest synergies, the deal is still seen adding value for shareholders in the first full-year after completion. The ball is now in the court of Reynolds’ board and shareholders to consider the offer.”
Owen Bennett at broker Jefferies added: “The US is one of the most attractive profit pools in the world and is the biggest e-vapour market. If e-vapour accelerates as we expect then the US is the place to be. Litigation risk is now largely behind us also.”