British American Tobacco offers US$47 billion to acquire remaining 57.8% share of Reynolds Tobacco

UK/USA. British American Tobacco (BAT) has launched a US$47 billion bid to acquire the 57.8% share of Reynolds Tobacco that it doesn’t already own. The deal would create the world’s largest publicly traded tobacco business by net turnover and operating profit.

The move would bring brands such as Camel, Lucky Strike, Newport and Pall Mall under one umbrella.

bat-2
BAT Chief Executive Nicandro Durante: “The proposed merger of our two great companies is the logical progression in our relationship”

BAT is based in the United Kingdom but does most of its business overseas. As a result it has benefitted financially from the weakening of the pound in the wake of Brexit, giving it more currency to make the acquisition bid.

US securities laws required BAT to announce its merger proposal promptly after it was made to the Reynolds board of directors.  As a result, BAT said it had been unable to have prior negotiations with Reynolds regarding the proposal.

BAT’s proposal values Reynolds at US$56.50 per share, of which US$24.13 would be in cash and US$32.37 would be in BAT shares. The offer also represents a premium of 20% over the closing price of Reynolds common stock on 20 October 2016.

As well as ensuring a strong share of the US market, BAT said the acquisition would create a company with a significant presence in South America, Africa, the Middle East and Asia.

The new company would also benefit from combining ‘next-generation products’ such as e-cigarettes and vaping products as well as R&D capabilities.

BAT said there was a strong financial rationale for the transaction and that it “supports long-term delivery for all stakeholders”. The company said it had made a “premium offer”, supported by modest cost synergies, with a significant share consideration enabling participation in the long-term benefits. It is earnings accretive in the first full year and is expected to be accretive to dividends per share, BAT noted.

“The transaction would create a broader, larger business, delivering more diversified sources of profit growth,” BAT said in a statement. “The combined company would maintain a strong financial profile, with a target of maintaining a solid investment grade credit rating and enhanced cash generation.”

BAT Chief Executive Nicandro Durante commented: “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, global tobacco and next-generation products company. BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future.”

The proposed merger is subject to endorsement of Reynolds’s independent directors (not designated by BAT) and approval by BAT and Reynolds shareholders.

Food & Beverage The Magazine eZine