Shareholders back British American Tobacco acquisition of Reynolds
Shareholders of British American Tobacco Plc and Reynolds American Inc on Wednesday approved merging into the world's largest publicly traded tobacco company.
Shareholders of both companies approved London-headquartered BAT buying the 57.8 per cent of Reynolds it does not already own. The purchase is expected to become effective next week. Each Reynolds share will convert to US$29.44 in cash and 0.5260 BAT shares.
The US$49 billion cash-and-stock offer announced in January valued each Reynolds share at US$59.64, up from US$56.50 offered in October. The price is nearly 40 per cent above the value of Reynolds shares before the October offer, BAT said in a disclosure to United States securities regulators.
"We look forward to welcoming Reynolds group employees to British American Tobacco and to realising the benefits of operating these two great companies as one stronger, global tobacco and Next Generation Products business," BAT Chief Executive Nicandro Durante said in a prepared statement.
The takeover is the latest in the string of consolidations that has seen the number of cigarette companies shrink this century. The deal gives BAT greater access to the US market, where cigarette prices and taxes are low relative to consumer incomes but the customer base in shrinking.
The combined company gains strength to increase sales in developing countries, where health restrictions aren't as strict. The combination also improves the sales push of vapour and nicotine replacement products and development of other new products.
BAT projects saving at least US$400 million a year through cost-cutting of corporate operations, increased purchasing power, and other supply-chain efficiencies. BAT also expects to add about US$38 billion of debt with the acquisition on top of nearly US$22 billion at the end of last year, the company said in a securities filing last month.
BAT sells Dunhill, Rothmans, Kent, Benson & Hedges and Lucky Strike cigarettes. The company said its cigarettes reach about 12 per cent of the world's one billion smokers. The company also sells roll-your-own cut tobacco, snus, cigars, and vapour products.
Winston-Salem, North Carolina-based Reynolds is the second-largest US cigarette company and owns the Camel and Pall Mall cigarette brands. Reynolds estimates that about half of its consolidated net sales last year were from menthol cigarettes, driven by segment-leader Newport. The company also sells smokeless tobacco, Natural American Spirit cigarettes and nicotine replacement products.
British-American Tobacco was established in 1902 and spread across the former British Empire, including India and East Africa.
Reynolds traces its roots to 1875, when Richard Joshua Reynolds started a chewing tobacco company in the city that has been its headquarters since. The takeover marks an end for what became R.J. Reynolds Tobacco, which stamped its home state of North Carolina as a centre during a bygone era of smoking's popularity through its Winston and Salem brands.
The company's links with British American Tobacco date to 2004, when R.J. Reynolds Tobacco Company merged with BAT's Brown & Williamson unit, creating Reynolds American. The two companies already have a technology-sharing agreement in the development of electronic cigarettes.