BAT linked with possible RAI acquisition and both linked with Lorillard deal

British American Tobacco could be on the verge of acquiring Reynolds American Inc., according to a story by Geoff Foster for This is Money’s Market Report.

BAT’s shares, Foster noted, had fallen by 19.5 pence to 3555.5 pence amid growing speculation it was ready to splash out billions of pounds buying the 58 percent of RAI it doesn’t already own.

In making such an acquisition, he added, BAT would stub out any plans RAI might have had to buy Lorillard.

A standstill agreement between BAT and RAI expires at the end of this month, at which point BAT will be free to bid to raise its 42 percent share.

Foster said that RAI’s shares traded at about $61.40 in New York early on July 8 and that rumors were rife that BAT could be willing to pay more than $75 a share to gain full control.

Broker Citigroup has said it would be advantageous for BAT to buy RAI since the deal would boost BAT’s earnings per share by about 10–13 percent, give it ownership of one of the best e-cigarette platforms and access to Reynolds’ heat-not-burn technology.

However, Bonnie Herzog, managing director, beverage, tobacco and convenience store research at Wells Fargo Securities, while acknowledging the rumors linking BAT and RAI, said she believed a deal between RAI and Lorillard was more likely.

In any case, she said, even if a BAT/RAI deal did emerge, ultimately it was likely that Lorillard would be acquired by a combined BAT/RAI.