LONDON -- Aiming to solidify its position in the U.S. and global markets, British American Tobacco Plc (BAT), which owns 42.2% of Reynolds American Inc. (RAI), has made a proposal to merge with Reynolds through the acquisition of the remaining 57.8% in the company for approximately $47 billion, $20 billion in cash and $27 billion in BAT shares.
Reynolds acknowledged that it has received the nonbinding proposal. In a statement, the board said it “will evaluate the offer from BAT and respond accordingly.”
The proposed merger is subject to endorsement of Reynolds’ independent directors and approval by BAT and Reynolds shareholders.
BAT values Reynolds at $56.50 per share, of which $24.13 would be in cash and $32.37 would be in BAT shares. It represents a premium of 20% over the closing price of Reynolds common stock on Oct. 20, 2016.
“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the U.S. market,” BAT CEO Nicandro Durante said. “The acquisition of Lorillard in 2015 has further strengthened Reynolds’s business. The proposed merger of our two great companies is the logical progression in our relationship.”
As reported in a McLane/CSP Daily News Flash, BAT said the merger would create a “stronger, truly global tobacco and next-generation products (NGP) company with a leading position in the U.S. tobacco market … a significant presence in high-growth emerging markets across South America, Africa, the Middle East and Asia, together with the most attractive developed markets [and] a unique portfolio of strong brands, bringing together ownership of Newport, Kent and Pall Mall.”
The companies’ combined new-product and research-and-development capabilities would “deliver a world-class pipeline of vapor and tobacco heating products across all the fastest-growing NGP markets globally,” it said.
U.S. securities laws required BAT to announce its merger proposal promptly after it made it to the Reynolds board.
Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, New York, believes this deal, if consummated, would increase the likelihood that Philp Morris International Inc., New York., would merge with Altria Group Inc., Richmond, Va.
“A BAT/RAI combination would catapult BAT to become the largest listed global tobacco company in terms of sales and operating profit, give BAT full access to the lucrative U.S. market, and create the largest reduced-risk tobacco products company,” she wrote in a research note. “As such, we don't believe [Philp Morris International] would idly sit by and believe this increases the probability that [it] could acquire [Altria].”
Reynolds American is the parent company of R.J. Reynolds Tobacco Co., maker of Newport, Camel and Pall Mall cigarettes; Santa Fe Natural Tobacco Co. Inc., maker of Natural American Spirit products; American Snuff Co. LLC, maker of smokeless tobacco products including Grizzly and Kodiak; Niconovum USA Inc. and Niconovum AB, which market nicotine replacement therapy products in the United States and Sweden; and R.J. Reynolds Vapor Co., marketer of Vuse digital vapor cigarettes.
Based in London, BAT is a global tobacco group with more than 200 brands sold in more than 200 markets. Its brands include Dunhill, Lucky Strike, Kent and Pall Mall, Kool, Benson & Hedges and Rothmans.
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