Share­hold­ers of U.K. firm, Reynolds OK tobacco deal

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - EMERY P. DALESIO

RALEIGH, N.C. — Share­hold­ers of Bri­tish Amer­i­can Tobacco and Reynolds Amer­i­can Inc. on Wednes­day ap­proved merg­ing into the world’s largest pub­licly traded tobacco com­pany.

Share­hold­ers of both com­pa­nies ap­proved Lon­don-based Bri­tish Amer­i­can Tobacco buy­ing the 57.8 per­cent of Reynolds it does not al­ready own. The pur­chase is ex­pected to be­come ef­fec­tive next week. Each Reynolds share will con­vert to $29.44 in cash and 0.5260 Bri­tish Amer­i­can Tobacco shares.

The $49 bil­lion cash-and­stock of­fer an­nounced in Jan­uary val­ued each Reyn-

olds share at $59.64, up from $56.50 of­fered in Oc­to­ber. The price is nearly 40 per­cent above the value of Reynolds shares be­fore the Oc­to­ber of­fer, Bri­tish Amer­i­can Tobacco said in a dis­clo­sure to U.S. se­cu­ri­ties reg­u­la­tors.

“We look for­ward to wel­com­ing Reynolds group em­ploy­ees to Bri­tish Amer­i­can Tobacco and to re­al­iz­ing the ben­e­fits of oper­at­ing these two great com­pa­nies as one stronger, global tobacco and Next Gen­er­a­tion Prod­ucts busi­ness,” Bri­tish Amer­i­can Tobacco Chief Ex­ec­u­tive Ni­can­dro Du­rante said in a pre­pared state­ment.

The takeover is the lat­est in the string of con­sol­i­da­tions that has seen the num­ber of ci­garette com­pa­nies shrink this cen­tury. The deal gives Bri­tish Amer­i­can Tobacco greater ac­cess to the U.S. mar­ket, where ci­garette prices

and taxes are low rel­a­tive to con­sumer in­comes, but the cus­tomer base in shrink­ing. The com­bined com­pany gains strength to in­crease sales in de­vel­op­ing coun­tries, where health re­stric­tions aren’t as strict. The com­bi­na­tion also im­proves the sales push of va­por and nico­tine re­place­ment prod­ucts and devel­op­ment of other new prod­ucts.

Bri­tish Amer­i­can Tobacco projects sav­ing at least $400 mil­lion a year through cost­cut­ting of cor­po­rate op­er­a­tions, in­creased pur­chas­ing power, and other sup­ply-chain ef­fi­cien­cies. Bri­tish Amer­i­can Tobacco also ex­pects to add about $38 bil­lion of debt with the ac­qui­si­tion on top of nearly $22 bil­lion at the end of last year, the com­pany said in a se­cu­ri­ties fil­ing last month.

Bri­tish Amer­i­can Tobacco sells Dun­hill, Roth­mans, Kent, Ben­son & Hedges and Lucky Strike cig­a­rettes. The com­pany said its cig­a­rettes reach about 12 per­cent of the world’s 1 bil­lion smok­ers. The

com­pany also sells roll-yourown cut tobacco, snus, cigars and va­por prod­ucts.

Win­ston-Salem, N.C.based Reynolds is the sec­ond­largest U.S. ci­garette com­pany and owns the Camel and Pall Mall ci­garette brands. Reynolds es­ti­mates that about half of its con­sol­i­dated net sales last year were from men­thol cig­a­rettes, driven by seg­mentleader New­port. The com­pany also sells smoke­less tobacco, Nat­u­ral Amer­i­can Spirit cig­a­rettes and nico­tine re­place­ment prod­ucts.

Bri­tish Amer­i­can Tobacco was estab­lished in 1902 and spread across the former Bri­tish Em­pire, in­clud­ing In­dia and East Africa.

Reynolds traces its roots to 1875, when Richard Joshua Reynolds started a chew­ing­to­bacco com­pany in the city that has been its head­quar­ters since. The takeover marks an end for what be­came R.J. Reynolds Tobacco, which stamped its home state of North Carolina as a cen­ter

dur­ing a by­gone era of smok­ing’s pop­u­lar­ity through its Win­ston and Salem brands.

The com­pany’s links with Bri­tish Amer­i­can Tobacco date to 2004, when R.J. Reynolds Tobacco Co. merged with Bri­tish Amer­i­can Tobacco’s Brown & Wil­liamson unit, cre­at­ing Reynolds Amer­i­can. The two com­pa­nies al­ready have a tech­nol­ogy-shar­ing agree­ment in the devel­op­ment of elec­tronic cig­a­rettes.

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