British American Tobacco to buy remaining of Reynolds American for a $47 bn
22 October 2016
British American Tobacco (BAT) on Friday tabled a $47-billion offer to buy the remaining stake it does not already own in Reynolds American, in order to create the world's largest listed tobacco company by revenue and market value.
Under the terms of the deal, BAT, which already holds 42.2-per cent stake in Reynolds, is offering to pay $24.13 in cash and $32.37 in shares for a total of $56.50 (£46) for the remaining 57.8 per cent, a 20 per cent premium to Reynolds's Thursday $47.17 closing share price.
BAT, the world's second-largest tobacco group behind Marlboro maker Altria, will pay a total of $20 billion (£16 billion) in cash and $27 billion (£22 billion) in shares, valuing the whole of Reynolds American at around $88 billion (£66 billion).
BAT said that it did not have any discussions with Reynolds's management about the offer before going directly to its board, while Reynolds said that it has received BAT's proposal and its board will now evaluate the offer and respond.
Analysts say that talks between Reynolds and BAT may lead to a higher offer price.
BAT, whose brands include Dunhill, Rothmans, Lucky Strike and Pall Mall, said the merger would create a stronger, ''truly global'' company with a leading position in the US market and a significant presence in South America, the Middle East, Africa and Asia.
"We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US market," said Nicandro Durante, CEO of BAT. "The proposed merger of our two great companies is the logical progression in our relationship."
The cost synergies associated with the proposed merger are estimated by BAT to be relatively modest at around $400 million.
A successful deal would create the world's largest listed tobacco firm by turnover and operating profit and the largest reduced risk tobacco products company.
A deal would also once again give BAT full access to the lucrative US market after it had exited the US in 2004, when it merged its US subsidiary Brown & Williamson with R.J. Reynolds to form Reynolds American.
The deal is unlikely to face antitrust issues because both companies compete in different markets, say analysts, but it would have to be approved by the board of Reynolds American - excluding BAT's own five nominees.
Reynolds American, which has a 14 member board including 5 of BAT, is expected to appoint a seven-person committee to consider the offer.