BAT bags Reynolds with $70b buyout offer

LONDON • British American Tobacco (BAT) raised the cash portion of its bid for full control of Reynolds American, offering about US$49.4 billion (S$70 billion) in a deal that would create the world's largest publicly traded tobacco company.

The deal brings together a raft of global brands, including BAT products Lucky Strike, Rothmans and Kent, and Reynolds' brands such as Newport, Camel and Pall Mall.

The combined company will have a strong foothold in the United States, and a significant presence in high-growth markets including South America, the Middle East and Africa. The cash and share bid values each Reynolds share at US$59.64, BAT said in a statement yesterday. The new offer is US$29.44 in cash and 0.526 of a BAT share for each Reynolds share. The previous one was US$24.13 in cash and 0.5502 of a BAT share.

BAT made an unsolicited cash-and-stock offer of US$56.50 a share on Oct 21 for the 58 per cent of Reynolds that it doesn't already own, a 20 per cent premium to the prior day's close. The value of that bid had dropped as BAT shares declined following the bid.

BAT added that it would create a "truly global" business for fast- growing next-generation products like e-cigarettes or vaping. The merger proposal is part of a wave of consolidation for the tobacco industry, which is struggling with shrinking demand for traditional cigarettes and an uncertain pathway to new technologies. Reynolds is attractive to BAT because it's a leader in the nascent US market for e-cigarettes.

Reynolds had sought a higher bid, according to people familiar with the matter.

BAT has held its current stake in Reynolds since the US company was created in 2004, and the two tobacco giants are close partners. BAT estimated that the transaction would create cost synergies of about US$400 million.

BAT has been at the forefront of industry consolidation. It spent about US$2.4 billion on a buyout of its Brazilian Souza Cruz unit last year, and it previously part-funded Reynolds' takeover of Lorillard - a move that let BAT maintain its 42 per cent stake in the maker of the Camel brand.

BLOOMBERG, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on January 18, 2017, with the headline 'BAT bags Reynolds with $70b buyout offer'. Print Edition | Subscribe