British American Tobacco Offers $47B For Reynolds American

Image courtesy of (MarteaDesignCo)

More than a decade after British American Tobacco bought a roughly 42% stake in tobacco biggie R.J. Reynolds American, the London-based company is back for the rest, offering $47 billion to create the world’s largest tobacco company. 

Reynolds, the maker of cigarette brands like Newport and Camel, confirmed on Friday that it had received a non-binding proposal from BAT to purchase approximately 58% of company stock that BAT does not currently own.

The North Carolina-based company says that its board of directors will evaluate the offer and respond accordingly. However, it did not give a timetable for which the discussions would occur.

For its part, BAT — the maker of brands like Lucky Strike and Dunhill — said in a statement that it had not had prior discussions with Reynolds before offering the $47 billion deal.

According to BAT’s offer, $20 billion is being offered in cash, while the remaining $27 billion would be in BAT shares.

The company believes the proposal is a good fit, as it would create “a stronger, truly global tobacco and Next Generation Products (NGP) company.”

The combined group would be the world’s largest listed tobacco and NGP business by net turnover and operating profit with exposure to both cash generative developed and high growth developing markets, BAT said in a statement.

BAT expects the merger to create synergies of around $400 million.

Of course, BAT and Reynolds aren’t exactly strangers, the two companies have been tied together since 2004, when Reynolds bought BAT subsidiary Brown and Williamson Tobacco Corp.

Under the long-standing Governance Agreement between the two companies, the proposed merger must be approved by the independent directors of Reynolds not designated by BAT.

BAT’s merger proposal comes just a year after Reynolds completed its own $27.5 billion acquisition of Lorillard Inc., the company behind Newport cigarettes. As part of that deal, the two companies were required to divest four brands — Salem, Winston, Kool, and Maverick — to Imperial Tobacco Group.

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