BAT shares rise on speculation of funding Reynolds’ bid for Lorillard

British American Tobacco Plc, Europe's biggest cigarette maker, gained in London trading on speculation that the company might fund a bid for Lorillard Inc by Reynolds American Inc.

BAT was up 1.8 per cent to 3,589.50 pence at 8:22 am, valuing the London-based company at £67.3 billion ($113 billion).

Reynolds is in advanced stage of acquisition of Lorillard, maker of Newport ciagarettes, a deal that might see a three-way transaction with BAT taking a ''major role'' in backing the merger, according to a Reuters report yesterday.

With the funding, BAT might be able to maintain its 42-per cent stake in Reynolds, which had a market value of $32 billion, according to Reuters.

''We don't know precisely what, if any, transaction could emerge, but we suspect that assuming one does it will be advantageous for BAT,'' Adam Spielman, an analyst at Citigroup Inc in London, said in a note.

Lorillard was up 10 per cent to $62.63 in New York yesterday, as the company's valuation stood at $22.7 billion. Reynolds, which boasts brands including Camel and Pall Mall, was up 4.4 per cent to $59.77.

Lorillard shares had been boosted 24 per cent this year by merger speculation, while Reynolds stock increased almost 20 per cent. The two companies are the biggest tobacco sellers in the US after Altria Group Inc.

An acquisition would give Winston Salem, North Carolina-based Reynolds a commanding position in the fast-developing market for electronic cigarettes, Market Watch reported.

E-cigarettes had a nearly 50 per cent market share in US gasoline and convenience stores. Reynolds had been a late entrant into e-cigarettes, which may be expected to have a market worth  $2 billion in US this year. Reynolds plans a national roll out of its Vuse e-cigarette next month, after the product  launched in Colorado and Utah in recent months.

A tie-up would also have international ramifications as UK-based British American Tobacco PLC, maker of Kent and Dunhill cigarettes, owned a 42-per cent stake in Reynolds and was likely to have a major say in any deal.

BAT could make an unsolicited offer for Reynolds shares after the expiry of a 10-year standstill agreement between the two  companies in July.