Reynolds Wants More After Rejecting BAT's Initial Takeover Bid

British American Tobacco PLC is willing to increase slightly its $47 billion buyout offer for Reynolds American Inc., according to a person familiar with the matter.

Both sides are in talks after U.S.-based Reynolds rejected BAT's original offer as too low, the person added.

Bloomberg reported the development earlier Monday.

U.K.-based British American, or BAT, offered in October to pay a roughly 20% premium for the 58% of Reynolds it doesn't already own. The takeover would create the world's largest listed tobacco company by revenue and stock market value.

Reynolds, the second-largest U.S. tobacco company behind Altria Group Inc. by sales, formed a special committee of independent directors at the end of October to evaluate BAT's Oct. 20 offer.

Reynolds had been widely expected to push for a higher price after BAT's nonbinding proposal.

In a research note Monday, Cowen & Co. tobacco analyst Vivien Azer characterized BAT's initial bid as "a good opening offer" but noted that it came after Reynolds's share price fell 12% from its all-time high in early July.

"We believe there is room for BAT to increase its original offer price," Ms. Azer wrote.

BAT's bid for Reynolds highlights the growing attraction of the U.S. in a shrinking global tobacco industry. American cigarette makers have been able to raise prices to offset declining volumes, and avoid plain packaging rules that are becoming more common overseas.

BAT, the world's No. 2 publicly traded company by volume behind Philip Morris International Inc., owns such cigarette brands as Dunhill, Lucky Strike and Pall Mall. Reynolds sells Newport and Camel in the U.S., in addition to other brands.

A combined BAT and Reynolds also would be the world's largest player in so-called next-generation products, such as electronic cigarettes. The two companies announced a technology-sharing agreement for vapor products last year.

Reynolds's share price closed 1% lower at $53.05 Monday on the New York Stock Exchange. It was unchanged in after-hours trading.

Write to Mike Esterl at [e-mail]

(END) Dow Jones Newswires

November 14, 2016 19:25 ET (00:25 GMT)

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