Tobacco giant BAT bids US$47b for control of Reynolds

BATLONDON: British American Tobacco said Friday it had launched a $47-billion bid for control of rival Reynolds American, eying rapid expansion into US and emerging markets and e-cigarettes.

The deal, worth the equivalent of 43 billion euros, would create the world’s largest listed tobacco company by net turnover and operating profit, BAT said in a statement.

BAT said the move would give it “a leading position in the US tobacco market” and “a significant presence in high growth emerging markets across South America, Africa, the Middle East and Asia, together with the most attractive developed markets”.

The blockbuster proposal would bring together BAT brands Dunhill, Kent and Lucky Strike cigarettes with Reynolds American’s Camel and Newport.

The combined group would have a “world class pipeline” of so-called next generation products, like e-cigarettes, in a fast-growing part of the market.

Most global tobacco firms are looking to emerging markets to offset sliding demand in Western Europe, where high taxes, public smoking bans and health concerns have persuaded many people to give up.

At the same time, in recent years there has been rapid growth in e-cigarettes, which are battery powered devices that heat a nicotine liquid.

The cash-and-shares offer would see BAT purchase the 57.8-percent of Reynolds American that it does not already own.

The bid, pitched at $56.50 per Reynolds share, was a 20-percent premium on Thursday’s close and comprises $20 billion in cash and $27 billion in BAT shares.

The deal values the entire group, which is based in Winston-Salem in North Carolina, at around $93 billion.

London-listed BAT noted that Reynolds’ 2015 purchase of US tobacco behemoth Lorillard, the manufacturer of the Blu e-cigarette, had “strengthened” the US group.

“The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and Next Generation Products company,” said BAT chief executive Nicandro Durante.

“BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future.”

The British firm, which already holds a 42.2-percent stake in Reynolds American, added that it had not yet held formal talks.

Due to US securities laws, BAT was required to announce its proposal promptly after it was made to Reynolds management, and had therefore been unable to have prior negotiations regarding the deal.

One in five adults in Britain smoke, and tobacco — which kills 100,000 people there each year — is the top preventable cause of cancer.

Worldwide, smoking claims around six million lives annually, mostly in low-income countries, according to the World Health Organization.