- British American Tobacco said it has made a $47 billion takeover offer for the roughly 58% of American peer Reynolds American that it doesn’t already own.
LONDON, Oct 21 (Reuters) - British American Tobacco (NYSEMKT:BTI) has offered to buy out U.S. cigarette maker Reynolds American Inc in a $47 billion takeover that would create the world's biggest listed tobacco company with brands including Newport, Lucky Strike and Pall Mall.
The cash-and-stock deal would mark the return of BAT to the lucrative and highly regulated U.S. market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.
It would also give the British company - which has been bolstered by a strong share price since the country voted to leave the European Union - more premium brands such as Camel which it can sell in countries like Russia and Turkey where demand for Western cigarettes is still growing.
The marriage would also unite each company's efforts in the fast-developing world of e-cigarettes, which the companies say are less dangerous than smoking - a habit that kills about six million people worldwide each year.
A Reynolds takeover by BAT, which already owns 42 percent of the U.S. group, has long been seen as part of an inevitable wave of global consolidation in a mature industry. Yet the timing, less than three weeks before a U.S. presidential election, was unexpected.
"This proposed deal manages to be both entirely expected and a surprise," Euromonitor analyst Shane MacGuill said.
The completion of last year's purchase by Reynolds of Lorillard, which gave it the popular Newport brand, and the current relative valuations of the two companies' shares were the main reasons the deal was resurrected in recent weeks, said three sources close to the situation.
"It moved very quickly on the back of the falling pound," said one of the sources, who all declined to be named in discussing private matters. A final decision was made this week, they said.
A 12 percent rise in BAT's shares since Britons opted for Brexit in June, and a 7 percent fall for Reynolds, brought the companies' trading multiples closer together, making a deal more affordable, the sources said.
The move increased the value of the share element of the offer for the U.S. shareholders of Reynolds, even as it made the cash portion more costly for the UK company.
But one source likened the deal to simplifying Reynolds's structure by removing the stake it does not own. "It's always been on the cards," he said.
After the Brexit vote, shares in BAT soared to all-time highs as investors bet the falling pound would lift the value of overseas revenue. BAT, whose share appreciation is less pronounced in dollar terms, does the vast majority of its business outside the country. It has over 200 brands in over 200 markets.
The pound has lost about a fifth of its value against the dollar since the EU referendum on June 23.
With little geographic overlap and therefore limited antitrust issues, this deal is also a lot simpler than another oft-speculated deal - that BAT would take over British rival Imperial Brands, the source added.
Imperial shares were up 2 percent on Friday, with one analyst saying a general reignition of consolidation in the industry may be outweighing the fact that BAT is now unlikely to bid for its rival in the near term.
Altria Group shares were up 4 percent in New York, boosted by hopes that an enlarged BAT would push Swiss-based market leader Philip Morris International to reunite with the U.S. company. The Marlboro maker split into two in 2008, when the risk of litigation in the United States was seen as a deterrent to foreign companies.
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