British American Tobacco bids €43bn for Reynolds American to create biggest tobacco company
The cash-and-stock deal would mark the return of BAT — which owns the PJ Carroll company in Ireland — to the lucrative and highly regulated US 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 EU — more premium brands such as Camel, which it can sell in countries such as 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 takeover by BAT, which already owns 42% of Reynolds, 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 US 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% rise in BAT’s shares since Britons opted for Brexit in June, and a 7% 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 US shareholders of Reynolds, even as it made the cash portion more costly for the UK company.
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 more than 200 brands in more than 200 markets.
