A year later, Imperial joined up with its former pursuer and new rival ATC to form a joint venture, the British American Tobacco Company. Over the next decade, BAT expanded into markets from Holland to Egypt, and by 1910 was selling 10bn cigarettes a year. Its US owners sold off their shares in 1911, and BAT listed on the London market. Its business was exports, while Imperial traded largely in the UK and the Republic of Ireland until the 1970s. Imperial sold its last financial holding in BAT by 1980.
Both have had long periods of diversification. Imperial moved into food and leisure with the acquisition of the company that made Golden Wonder crisps as well as the HP Sauce Group in the 1960s, and bought pub and hotel group Courage in 1972. BAT moved even further afield, with the acquisition of Argos and department store Saks Fifth Avenue in the late 1970s, and then built up an insurance business.
As the 20th century came to a close, growing awareness of the ill-health effects of smoking dented consumption in developed markets and made for bad headlines and legal costs. Amid this reckoning for Big Tobacco, BAT subsidiary Brown & Williamson caught widespread attention for its treatment of whistleblower Jeffrey Wigand, dramatised on screen in 1999 movie The Insider.
Imperial and BAT eventually sold their non-core businesses and refocused. In a simple twist of fate, BAT bought its former parent ATC (maker of the Lucky Strike and Pall Mall brands) in 1994 and then merged with Rothmans (Dunhill). In 2004, BAT merged B&W with RJ Reynolds to form Reynolds American, in exchange for a 42 per cent stake. Bosses at BAT were keen to scotch any idea that it was a retreat from the US market, saying that it gave them a holding in a "stronger and more sustainable business", albeit one it did not control (yet).
Following a decade of private equity ownership, Imperial Tobacco returned to the market in 1996, prefacing a period of acquisitions including rolling papers manufacturer Rizla, German tobacco group Reemstma and Commonwealth Brands in the US, followed by European operator Altadis (owner of Gauloises Blondes).
With the rise of vaping, the US market has returned to the fore. Both companies received a fillip when Reynolds acquired rival Lorillard last year: it boosted earnings for BAT's stake, and made for some juicy spin-off assets for Imperial Brands, which helped volumes at the half-year stage.
Purchasing the rest of Reynolds has clear market share logic for BAT, including in emerging markets, and should help it catch up with industry giant Philip Morris International (US:PM) when it comes to e-cigarettes and other alternatives.
All this corporate activity has been excellent for the share price of both BAT and Imperial since the start of the century, but has left both groups with fairly high leverage ratios. They have net debt to cash profits ratios of 3.5 times and 4 times, respectively, against a global peer group average of 2.1 times, according to S&P Capital IQ figures.
It's understandable, then, that British American's shareholders and credit agencies are similarly concerned about the debt needed to be raised to pay for the deal. On the bright side, the tie-up would be expected to deliver cost synergies of $400m (£327m), and Reynolds' cash generation will bolster BAT's dividend. But if we are set for another wave of consolidation and brand-swapping, it is the British operators that look stretched.
