2 of Big Tobacco’s biggest firms to merge
British American, Reynolds merger creates new giant
RALEIGH, N.C. — The consolidation of Big Tobacco companies looking as much to nicotine replacements and e-cigarettes for revenue as traditional smokes continued Wednesday with what will become the world’s largest publicly traded tobacco company.
Shareholders approved British American Tobacco taking over WinstonSalem, N.C.-based Reynolds American Inc., the latest in a string of mergers that has seen the number of cigarette companies shrink this century.
The deal gives Londonbased BAT greater access to the U.S. market, where cigarette prices and taxes are low relative to consumer incomes, but the customer base is shrinking. The combined company gains strength to increase sales in developing countries, where health regulations aren’t as strict. The combination also improves the sales push of vapor and nicotine replacement products and development of other new products.
“We look forward to welcoming Reynolds group employees to British American Tobacco,” BAT Chief Executive Nicandro Durante said in a prepared statement.
BAT 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-your-own cut tobacco, snuff, cigars, and vapor products.
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 chewing tobacco company in the city that has been its headquarters since.
The company’s links with British American Tobacco date to 2004, when R.J. Reynolds Tobacco Co. merged with BAT’s Brown & Williamson unit, creating Reynolds American.
BAT projects saving at least $400 million a year through cost-cutting of corporate operations, increased purchasing power, and other supply-chain efficiencies. BAT 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.
Shareholders of both companies approved BAT 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 BAT shares.
The $49 billion cashand-stock offer announced in January valued each Reynolds 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, BAT said in a disclosure to U.S. securities regulators.