Company offers $47 billion to create largest tobacco business

October 22, 2016 at 3:20 a.m. | Updated October 22, 2016 at 3:21 a.m.

by Associated Press

In this Friday, July 17, 2015 file photo, Camel and Newport cigarettes, both Reynolds American brands, are on display at a Smoker Friendly shop in Pittsburgh. British American Tobacco offered Friday, Oct. 21 2016 to buy Reynolds American Inc. in a $47 billion cash-and-stock deal that would create the world's largest publicly traded tobacco company and bring together brands like Camel, Dunhill, and Newport. The logic of the deal, analysts say, is to make up for a decline in the number of smokers in their home markets of the U.S. and Britain as they look to developing markets and new products, such as electronic cigarettes.
In this Friday, July 17, 2015 file photo, Camel and Newport cigarettes, both Reynolds American brands, are on display at a Smoker Friendly shop in Pittsburgh. British American Tobacco offered Friday, Oct. 21 2016 to buy Reynolds American Inc. in a $47 billion cash-and-stock deal that would create the world's largest publicly traded tobacco company and bring together brands like Camel, Dunhill, and Newport. The logic of the deal, analysts say, is to make up for a decline in the number of smokers in their home markets of the U.S. and Britain as they look to developing markets and new products, such as electronic cigarettes.

LONDON-British American Tobacco has offered to buy out Reynolds American Inc. for $47 billion in an attempt to gain a strong presence in the U.S., a lucrative market where sales of electronic cigarettes are booming as traditional smoking fades.

The takeover would create the world's largest publicly traded tobacco company and combine BAT's presence in developing countries, where anti-smoking campaigns are not as strong as in the U.S. and Europe, with Reynolds' almost exclusive focus on the U.S.

BAT already owns 42 percent of Reynolds and sells Dunhill, Rothmans and Lucky Strike cigarettes. Reynolds controls about a third of the U.S. market with brands like Newport, Camel and Pall Mall.

Though smoking in the U.S. is declining, it remains "the largest global profit pool" outside of China, BAT said in a statement Friday. The U.S. is one of the biggest markets for e-cigarettes.

"BAT and Reynolds American have a strong existing relationship, and while cost savings will be relatively modest, the full access this acquisition would give BAT to the U.S.-a lucrative, consolidated market with high barriers to entry-means it makes eminent sense," Shane MacGuill, head of tobacco at Euromonitor International, said by e-mail.

The British company offered Friday to buy the Reynolds shares it doesn't already own for the equivalent of $56.50 each, 20 percent more than Thursday's closing price. Investors would receive $24.13 in cash and 0.5502 of a BAT share for each Reynolds share they own. That values Reynolds, based in Winston Salem, North Carolina, at $93 billion.

Reynolds shares jumped 13.5 percent to $53.50 in in New York, while BAT edged down 0.3 percent to 47.88 pounds in London.

The deal is the latest attempted merger in the industry as tobacco companies face weakening demand in developed markets. Only last year, Reynolds American acquired Lorillard, the maker of Newport, the U.S.'s best-selling menthol cigarette brand.

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