NEW YORK -- The dawn of a new Republican administration may have slowed the bidding process for British American Tobacco’s potential acquisition of Reynolds American, according to at least one analyst.
Recounting the course of events in a recent newsletter, Nik Modi, managing director of tobacco, household products and beverages for RBC Capital Markets, New York, said that since BAT’s initial offer on Oct. 21, the elections of Nov. 9 and the victory of President-elect Donald Trump have put into play possible changes in current tax codes that would reflect favorably on Winston-Salem, N.C.-based Reynolds. Modi said Reynolds officially rejected BAT’s offer Nov. 14, several days after the election.
The initial proposal was to acquire the remaining 57.8% of Reynolds that BAT does not already own for $56.50 per share (a 20% premium at the time and, more recently a 3% premium). On Jan. 4, StreetInsider reported BAT and RAI had hit a “snag” in negotiations.
Trump and incoming Treasury Secretary Steve Mnuchin have discussed lowering the corporate tax rate to as low as 15%, Modi said. “[Such a change] would especially benefit companies like [Reynolds] with high effective tax rates—37%—thereby complicating deal terms,” Modi said. “For this reason, we believe negotiations will be ongoing until they have some clarity on potential tax reform.”