British American Tobacco and Reynolds American Inc. have agreed the terms of a recommended offer for BAT to acquire the 57.8 percent of Reynolds it does not already own.
In a note posted on its website, BAT said the transaction had been unanimously approved by the transaction committee of independent Reynolds directors established to evaluate the BAT offer.
The transaction had been approved also by the boards of Reynolds and BAT.
‘The parties expect the transaction to close during the third quarter of 2017, subject to: obtaining affirmative votes from BAT and Reynolds shareholders; obtaining anti-trust approvals in the US and Japan; registration of BAT shares with the SEC; approval of the BAT shares for listing on the LSE and the BAT ADRs on the NYSE; and, other customary conditions,’ the note said. ‘Completion of the merger is not subject to any financing condition.’
BAT said the acquisition would create a stronger, truly global tobacco and next generation products (NGP) company to deliver sustained long-term profit growth and returns with:
- ‘A balanced presence in high growth emerging markets and high profitability developed markets, combined with direct access to the attractive US market;
- ‘A portfolio of strong, growing global brands, bringing together ownership of Newport, Kent and Pall Mall;
- ‘A truly global NGP business, with a world class pipeline of vapor and tobacco heating products and access to the fastest growing NGP markets;
- ‘At least $400 million of annualised cost synergies anticipated by the end of year three, supporting continued margin improvement;
- ‘EPS and DPS accretive in the first full year and targeting mid-single digit EPS accretion in year three, with the transaction beating the Group’s WACC for the US by year five;
- ‘Enhanced cash generation with increased control of a significant proportion of group cash flows;
- ‘Continued commitment to BAT’s dividend policy with a pay-out ratio of at least 65 percent;
- ‘A continuing strong financial profile, targeting a solid investment grade credit rating through progressive deleveraging.’
“We are very pleased to have reached an agreement with the transaction committee and board of Reynolds and we look forward to putting the recommended offer to shareholders,” said BAT’s chief executive, Nicandro Durante.
“We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team’s strategy, including its acquisition of Lorillard, which we supported with our own investment in 2015.
“BAT has consistently executed a winning strategy and has a proven track record of delivering strong results and returns for its shareholders while successfully investing for future growth.
“Our combination with Reynolds will benefit from utilising the best talent from both organisations.
“It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world.
“We believe this will drive continued, sustainable profit growth and returns for shareholders long into the future.”