The London, UK-based British American Tobacco PLC (LON:BATS) has agreed to buy business rival Reynolds American of the United States in a deal that is worth $49.4 billion. With this acquisition, it will create the biggest listed tobacco company in the world and will bring together some of the best-known tobacco brands such as Camel, Dunhill, Rothmans, and Lucky Strike cigarettes.
British American Tobacco Takes Over Full Control of Reynolds
British American already had a 42 percent stake in the US-based firm that is headquartered in North Carolina but was trying to take over the remaining 57.8 percent in the company for the past few months. The two businesses were in talks, and in fact, BAT had even made an offer earlier, but that was rejected by Reynolds last November. This time, BAT increased their offer price by $2 billion, and Reynolds finally budged.
A BAT official said, “A merger creates a stronger, truly global tobacco business. It was the logical progression in our relationship”. According to their estimates, the merger will save the company $400 million.
Nicandro Durante, the chief executive of BAT added, “Binging the two companies together would drive “sustained profit growth and returns for shareholders. It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world”.
British American will be paying $29.44 billion in cash and 0.5260 of their stocks for each share of Reynolds at a 26 percent premium over the closing price of the stock on October 20, which was the day before the first offer was disclosed publicly.
An Important Acquisition for British American Tobacco
This is an important acquisition for the British company, as Reynolds American (NYSE:RAI) is the second-largest tobacco business in the United States after Altria, the owner of Philip Morris USA. Reynolds has been in business since 1875.
Last year, Reynolds themselves purchased their American rival Lorillard for $25 billion but had to agree to sell off many brands like Salem, Winston, and Kool to meet safety regulations. Eventually, Imperial Tobacco of Britain purchased these brands for $7.1 billion.
BAT was particularly interested in Reynolds because the acquisition will let them re-enter the regulated US market after an absence of 12 years. It would make British American Tobacco PLC (LON:BATS) the only leading tobacco business in both the international and the American markets.