Proposed takeover would create world’s largest publicly traded tobacco company
rettes.
The merger “is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next generation products company,” Chief Executive Nicandro Durante said in a statement.
Reynolds said in a statement that it will evaluate the offer.
Tobacco companies are particularly keen to expand in developing countries to make up for weaker sales in Europe and the U.S. The industry has been grappling with widespread anti-smoking campaigns that have forced companies such as BAT and Reynolds to diversify into nicotine replacements and e-cigarettes to meet consumer health concerns.
It also comes only months after Britain instituted plain packaging rules for cigarettes. The idea is to dampen the allure of cigarettes created by advertising and prevent a new generation from taking up the habit.
Reynolds warned in a 2016 filing that if its companies “are not able to develop, produce or market new alternative products profitably, the results of operations, cash flows and financial positions … could be adversely affected.”
“The markets in which these firms are the dominant players are declining, and they face ever-increasing competition from Asia in seeking to develop new markets,” said Nigel Driffield, professor of international business at Warwick Business School in England.
Asian tobacco companies face less public pressure over increasing sales in developing markets, where public health regulation might not be as strict, he said.
But the U.S. remains an important market. Owen Bennett, an equity analyst at Jefferies International, underscored that the United States currently accounts for 45 percent of global sales of e-cigarettes, also known as vapor cigarettes.
“If vapor accelerates as we expect, then the U.S. is the place to be,” he said. “The deal would also give BAT the best exposure to global e-vapor development.”
BAT employs more than 50,000 people globally, while Reynolds employs 5,700, mostly in the U.S.
The planned merger would create a company likely to overtake Philip Morris International Inc. as the world’s biggest publicly traded tobacco company. But China’s National Tobacco Corp. is bigger than BAT and Reynolds both combined, Euromonitor International data showed.
BAT, founded in 1902, sold 663 billion cigarettes in more than 200 countries last year and generated revenue of $16 billion. Reynolds shipped 76 billion cigarettes last year and reported sales of $10.7 billion.