World’s biggest tobacco company set to form in late 2017

The famous Dunhill brand will join other well-known cigarettes such as Pall Mall and Kent.

British American Tobacco (BAT) will soon control the world’s largest portion of the tobacco market, when it assumes full control of US company Reynolds American in a takeover bid worth $US49.4 billion.

The merger will bring popular brands such as Newport, Kent and Pall Mall (Reynolds) under the same roof as Lucky Strike, Rothman’s, Camel and Dunhill.

The transaction is expected to close during third quarter 2017.

BAT already owns 22.2 per cent of Reynolds, having been a shareholder since 2004, and had been in talks with the company for several months to negotiate a buyout of the remaining 57.8 per cent stake.

Last November Reynolds rejected a $US47 billion offer from BAT, which has stated it stands to make $US400 million worth of savings from the deal.

The announcement caused immediate market interest in Reynolds shares, which jumped from just below $US56 per unit to $US58.15 almost immediately, and Citibank downgraded Reynolds shares from BUY to NEUTRAL with a target of $US60.

Reynolds shareholders will receive $US29.44 in cash and 0.5260 BAT ordinary shares (in BAT American Depository Receipts) for each share owned.

BAT estimated the 57.8 per cent share in Reynolds is worth $US59.64 billion, representing a bargain-basement discount of more than $US10 billion.

Reynolds American executive chairman Susan M. Cameron said the new company would have a focus on vaping and other tobacco innovations. Image: Fortune

BAT chief executive Nicandro Durante said the company was very pleased to have reached an agreement and looked forward to making the offer to shareholders.

“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 said.

“BAT has consistently executed a winning strategy and has a proven track record of delivering strong results and returns for its shareholders while successfully 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.”

Reynolds American executive chairman Susan M. Cameron indicated a strong push towards vaping and other modern tobacco products, stating the merger would allow formation of an industry leader that will focus on innovation and brand building.

“This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products,” she said.

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