Merger will create the world's largest tobacco company by market cap and revenue
Companies: British American Tobacco, Reynolds American
British American Tobacco Plc (LON: BATS) has agreed a £40bn deal with US tobacco giant Reynolds American Inc to acquire the remaining 57.8% of the company it doesn't already own.
The deal, if agreed by shareholders, will create the world's largest listed tobacco firm by market value and revenue, and follows months of negotiations between the two companies.
In a regulatory news filing on Tuesday BATs said that the deal would create a "...truly global tobacco and Next Generation Products ("NGP") company" that would be able to deliver "sustained long-term profit growth and returns..."
The move will see many of the world's most recognisable tobacco brands under one roof, including Lucky Strike, Camel, Pall Mall, Kent, Newport, Dunhill, and Rothmans.
The companies believe the deal will be able to deliver c.$400m in efficiency and synergy cost savings by 2020, and position the company to be able to focus on next-gen products.
The terms of the deal:
Reynolds shareholders will receive for each Reynolds share $29.44 in cash and 0.5260 BAT ordinary shares which shall be represented by BAT American Depository Receipts (ADRs) listed on the New York Stock Exchange
Based on BAT's share price and the Dollar-Sterling exchange rate as at market close on 16 January 20171, this implies a total current value of $59.64 per Reynolds share and a total current value of approximately $49.4 billion for the 57.8% of Reynolds not already owned by BAT
Represents a premium of 26% over the closing price of Reynolds common stock on 20 October 2016 (being the last day prior to BAT's announcement of a proposal to merge with Reynolds)
NYSE-listed Level III ADRs representing BAT ordinary shares will be issued following registration under US securities laws
BAT has been a major shareholder in US-listed Reynolds since 2004, but saw its initial offer of $47bn rejected at the end of last year. Today's offer represents a 26% premium on the closing price on 20 October last year, when BAT's original offer was lodged.
BAT's CEO Nicandro Durante said he was very pleased to have reached an agreement with the Transaction Committee and Board of Reynolds:
"We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team's strategy, including its acquisition of Lorillard, which we supported with our own investment in 2015...
He continued that the firm has consistently "executed a winning strategy" and has a track record of delivering strong returns for shareholders while investing for future growth:
Our combination with Reynolds will benefit from utilising the best talent from both organisations. It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world. We believe this will drive continued, sustainable profit growth and returns for shareholders long into the future."
BATs share price spiked up 1.2% in early trading before returning to Monday's close price shortly afterwards.