Timing of SC share acquisition proposal ‘compelling’

British American Tobacco is evaluating a possible public tender offer to acquire up to all of the 24.7 percent of Souza Cruz shares that are not owned by BAT, and to delist the company.

In a press note posted on its website yesterday, BAT said any offer for Souza Cruz’s shares would be at a price per share of R$26.75, to be paid in cash, in Brazilian reals, and to be reduced by any dividend paid by Souza Cruz.

‘A price of R$26.75 per share would represent a premium of 30.0 percent to Souza Cruz’s volume weighted average closing share price over the three months to Friday 20 February 2015 (being the last trading day before the date of announcement)’, the press note said.

‘The consummation of the offer is still subject to, inter alia, BAT’s board approval and the finalization of an appraisal report by an independent evaluator which is required in accordance with the relevant Brazilian rules.

‘There can be no certainty that any offer will be made, the related terms of any such offer nor that any delisting will occur.’

Erik Bloomquist, a senior analyst, consumer staples, at Berenberg, said the timing of BAT’s proposal was compelling for four reasons:

1) ‘the real is near a 10-year low relative to sterling;

2) ‘interest rates are near five-year lows with attractive rates available for highly rated corporates;

3) ‘tax headwinds in the SC business could dissipate substantially in 2016; and

4) ‘in our opinion, SC is one of the jewel businesses in BAT.’