£40bn takeover to create a TOBACCO GIANT

And this time it is a British firm gobbling up its US competitor

BRITISH American Tobacco has agreed to takeover Reynolds for £40bn, creating the world’s largest listed tobacco firm.

The British cigarette giant, which owns brands including Dunhill, Kent and Lucky Strike, has bought the remaining 57.8pc stake in the US rival that it didn’t already own.

As part of the deal BAT will own the Camel and Newport brands.

The two firms combined will overtake Philip Morris International Inc, the maker of Marlboro, as the world’s largest publicly traded tobacco company. China National Tobacco, run by China’s State Tobacco Monopoly Administration, is the biggest overall.

BAT first made a bid for its rival back in October, though the deal was called off following rumours that Reynolds had deemed the £38bn offer too low.

The current agreement, a £2bn boost from the initial bid, values Reynolds at more than £69bn, a 26pc premium against its closing share price in October when news of BAT’s interest first emerged. It is likely to spark a bumper payday for investment bankers who brokered the deal. Prior to the merger BAT, which has more than 200 brands sold in some 200 markets and employs over 50,000 staff worldwide, only accounted for 5pc of the US market.

The deal will see its business return to the US more than a decade after it folded its subsidiary, Brown & Williamson, in exchange for a minority stake in Reynolds.

It’s the biggest foreign takeover by a British company since the disastrous acquisition of ABN Amro by Royal Bank of Scotland for £63bn in 2007 and is the latest big deal in the ‘ sin’ sector following the £ 79bn merger between brewers SAB Miller and AB InBev and a wave of consolidation in the gambling industry.

Nicandro Durante, chief executive of BAT, said the deal was key to maintaining the firm’s business internationally.

Reynolds, which sold 83bn cigarettes in 2015 to BAT’s 663bn, added the merger will allow it to develop its next generation products – a name given to ‘ alternative’ smoking devices such as e- cigarettes and vapours.

Durante said: ‘Our combination with Reynolds will benefit from utilising the best talent from both organisations. It will create a stronger, global tobacco and next generation products business with direct access for our products across the most attractive markets in the world.’

Analysts have also suggested the takeover could spark further deals as Philip Morris International and Japan Tobacco jostle for market share in the West, amid the fall in the number of people smoking.

Russ Mould, investment director at AJ Bell, said key players would most likely be looking to strike a deal with Imperial Brands in order to boost their foothold.

He said: ‘Imperial Brands is one of the last of the really big independent major players.

‘While it wouldn’t be the most straightforward deal – there will be competition concerns on both fronts – I think there’s an expectation that Japan Tobacco would potentially be a logical candidate,’ he said.

The exact composition of the merged firm remains unclear as the deal is still subject to shareholder and regulatory approval, and it’s also not yet clear who will take the helm.

Experts believe Reynolds boss Debra Crew, 45, who replaced Susan Cameron as chief executive at the start of the year, is a better option to run the combined firm than BAT boss Durante, 60. Cameron is now Executive Chairman.

However, analysts have said it would be wrong to assume she’ll land the top job. A spokesman for Reynolds said that while the details have yet to be finalised, it’s likely to lead to an increase in jobs, rather than a fall.