British American Tobacco Offers to Buy Remaining Reynolds Stake for $47 Billion -- Update

By Ian Walker 

LONDON-- British American Tobacco PLC said it has made an unsolicited $47 billion takeover offer for the roughly 58% of American peer Reynolds American Inc. that it doesn't already own--a move that would cement the two cigarette giants' longstanding trans-Atlantic ties and create the world's largest listed tobacco company.

BAT already owns 42.2% of Reynolds, and is offering cash and BAT stock worth $56.50 a share for the rest of the company, representing a roughly 20% premium to Reynolds' closing shares Thursday. BAT said it hadn't had previous discussions with management about the offer before going directly to Reynolds' board.

The deal would value Reynolds at $81.3 billion.

The move comes after a wave of consolidation in the industry. While the world's tobacco giants are still encumbered with years of pending litigation and liabilities, the industry has enjoyed steady returns and profits.

Last year, Reynolds completed its own $25 billion acquisition of Lorillard Inc. after yearlong scrutiny by regulators. That deal upended and further consolidated the U.S. tobacco industry, triggering Reynolds to sell its Kool, Salem and Winston cigarette brands and Lorillard's Maverick to Imperial Tobacco Group PLC for $7.1 billion.

Reynolds's top-selling brand is Camel, while Newport leads sales for Lorillard.

Shares in BAT opened 2.3% higher Friday morning.

Earlier this year, BAT executives, in response to speculation it could be looking for a deal, said they didn't see any major industry consolidation in the short to medium term.

Accepting Reynolds shareholders will get $24.13 in cash, and 0.5502 British American Tobacco shares worth $32.37 for each share held.

Separately, British American Tobacco said the trading environment in a number of key markets remains challenging, with foreign exchange continuing to hurt the cost of sales at a transactional level.

The company reported that revenue for the nine months ended Sept. 30 rose 8.1% at constant exchange rates, or 6.2% on an organic basis.

Cigarette volumes rose 2.2%, or 0.9% on an organic basis, in the nine-month period.

Write to Ian Walker at [e-mail]

(END) Dow Jones Newswires

October 21, 2016 03:20 ET (07:20 GMT)

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