British American Tobacco (BATS) has offered to pay $56.50 (£46) a share – or $47bn (£38bn) in total – to take full control of peer Reynolds American in a deal that would create the world’s biggest tobacco company. That represents a premium of 20 per cent over the closing price of Reynolds common stock on 20 October 2016.
The cash-and-shares deal would see British American Tobacco take full control, by buying the remaining 58 per cent stake in Reynolds it doesn’t already own. Reynolds owns more than a third of the market share in the US, via brands such as Pall Mall, Newport, and Camel, so a merger would take BAT back into the American market in a very strong position.
At the moment, there’s little indication from Reynolds whether the offer will be put before shareholders, but BATS shares – already up by 20 per cent over the last 12 months – were among the strongest risers in the FTSE 100 following the news. They were also helped by a strong trading update for the first nine months of the year. An interim management statement from the London-listed cigarette maker said year-to-date revenues are up 8.1 per cent at constant rates of exchange, or 6.2 per cent on an organic basis. Volumes are also up in key markets, along with market share. Should the merger go through, bosses at BAT estimate that they can make $400m worth of cost-savings through the deal.
