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BAT bags new technology with Reynolds purchase

British American Tobacco's snaffling of the remainder of its US-based rival it didn't own looks to be a play on the future of the industry
January 17, 2017

British American Tobacco (BATS) is close to becoming the world's largest tobacco company by sales by inhaling the outstanding 57.8 per cent of rival Reynolds American (us:RAI) it does not already own.

IC TIP: Hold at 4706p

The recommended offer will create the world’s largest tobacco company by sales and gives BAT direct access once again to the US, which is becoming an increasingly desirable market given American consumers’ take-up of next generation products, such as e-cigarettes. Vapour and tobacco heating products were specifically mentioned as part of the rationale for the deal.

BAT had initially offered $47bn (£38.8bn) at the back end of last year but was rebuffed. This week its $49.4bn offer seems to have done the trick: Reynolds shareholders will receive $29.44 in cash and 0.5260 BAT ordinary shares. The deal is a 20 per cent premium to the price of the shares on 20 October last year, the day before BATS’ interest became public.