Tobacco giant to emerge from US$49b deal
British American Tobacco Plc will take over Reynolds American Inc to create the world's largest publicly traded tobacco company that would seek to capitalise on growing demand for electronic cigarettes in the United States and traditional ones in developing countries.
BAT, which has a greater global footprint and already sells Dunhill, Rothmans and Lucky Strike cigarettes, is interested in Reynolds' greater market share in the US, where use of e-cigarettes is growing fastest.
On the other hand, they would be able to market Reynolds' brands like Newport, Camel and Pall Mall across a range of developing economies, where anti-smoking campaigns are not as strong as in the US and Europe.
"This is a big move, that makes a lot of sense for BAT," said Steve Clayton, a fund manager for financial services firm Hargreaves Lansdown. "They already had billions tied up in Reynolds, now they will have billions more, but with full control of the company and its cash flows."
BAT will pay about US$49 billion to buy the 57.8 per cent of Reynolds it doesn't already own. Reynolds shareholders will receive for each share US$29.44 in cash and 0.5260 BAT shares.
That values Reynolds, which is based in Winston Salem, North Carolina, at US$59.64 per share, or US$85 billion in total.
"Our combination with Reynolds will benefit from utilising the best talent from both organisations," BAT's chief executive, Nicandro Durante, said in a statement on Tuesday. "It will create a stronger, global tobacco and (next-generation products) business with direct access for our products across the most attractive markets in the world."
Tobacco companies are particularly keen to expand sales of traditional cigarettes in developing countries to make up for weaker sales in Europe and the US. The industry has been grappling with widespread anti-smoking campaigns that have forced companies like BAT and Reynolds to diversify into nicotine replacements and e-cigarettes to meet consumer health concerns.
BAT is the larger company of the two. Founded in 1902, it sold 663 billion cigarettes in more than 200 countries in 2015, generating revenue of 13.1 billion pounds (US$16 billion). Reynolds shipped 76 billion cigarettes and reported sales of US$10.7 billion.
BAT employs more than 50,000 people against Reynolds' 5,700 employees, who are mostly in the US. BAT is also the parent company for Jamaica's largest cigarette trader, Carreras Limited.
Reynolds traces its roots to 1875, when Richard Joshua Reynolds started a chewing tobacco company in what was then Winston, North Carolina. The company's links with British American Tobacco date back to 2004 when R.J. Reynolds Tobacco Company merged with BAT's Brown & Williamson unit, creating Reynolds American. BAT was left with a 42 per cent stake in the new company.
The planned merger would create a company likely to overtake Philip Morris International Inc as the world's biggest publicly traded tobacco company. But China's National Tobacco Corp is bigger than BAT and Reynolds both combined, Euromonitor International data showed.
Asian tobacco companies face less public pressure over increasing sales in developing markets, where public health regulation may not be as strict, analysts say.