BAT and Reynolds to create world's biggest tobacco company

BAT and Reynolds to create world's biggest tobacco companyBritish American Tobacco Plc (BAT) reached agreement to buy full control of Reynolds American Inc. with a sweetened $49.4 billion offer, bringing a successful end to almost three months of bartering with the maker of Camel cigarettes, Bloomberg said on Tuesday.

BAT increased the cash element of a cash-and-share bid for the 58 percent of Reynolds that it doesn’t already own. The new offer values each Reynolds share at $59.64, the London-based company said Tuesday, about 5.6 percent more than the $56.50 it proposed on October 21.

Hammering out the terms of an improved deal has been a slow process for the cigarette makers, complicated by uncertainty created by Donald Trump’s election. With agreement in place, the companies can move forward with a combination that marks the latest stage in a wave of consolidation for the tobacco industry, which is struggling with shrinking demand for traditional cigarettes and an uncertain pathway to new, potentially less harmful technologies.

“The market will be relieved that they have got the deal over the line. People were starting to worry that the negotiations might break down,” said Richard Marwood, a fund manager at Royal London Asset Management whose assets include BAT shares.

The UK company said it’s offering $29.44 in cash and 0.526 of a BAT share for each Reynolds share, pushing the cash element up from $24.13. The increase partly reflects a drop in the sterling-dollar rate since BAT made its initial proposal.

Analysts have said a possible corporate tax cut by President-elect Trump would also justify an increase in the bid, although BAT denied that played any role.

BAT estimated that the transaction would create cost synergies of about $400 million. The UK company has gained confidence in that target and would hope to exceed it, Chief Financial Officer Ben Stevens said on a conference call.

Combined, the two companies would overtake Philip Morris International Inc., the maker of Marlboro, as the world’s largest publicly traded tobacco company by revenue. It would give the UK company an initial foothold in the U.S., which will account for about 35 percent of the combined group’s revenue, according to Bloomberg data. BAT will also gain access to Reynolds’s leading electronic-cigarette position including the Vuse brand.

The combination could herald more tobacco-industry deals. Japan Tobacco Inc. buying Britain’s Imperial Brands Plc, and Philip Morris International Inc. re-merging with Altria Group Inc. eight years after splitting are the most plausible scenarios, experts say.

BAT said a committee of independent Reynolds directors unanimously approved the offer, which will boost the UK company’s earnings per share in the first year after completion. The British company has held a stake in Winston-Salem, North Carolina-based Reynolds since the U.S. company was created in 2004, and the two tobacco giants are close partners on vapor technology innovation.

Centerview Partners, Deutsche Bank and UBS AG advised BAT on the deal, while JPMorgan Securities and Lazard acted for Reynolds.
See also:
Leave a comment
  • Latest
  • Read
  • Commented
Calendar Content
«    Июнь 2019    »