BAT-Imperial deal ‘likely’

Wells Fargo Securities believes a deal between British American Tobacco (BAT) and Imperial Tobacco Group (ITG) is “very probable,” based on a detailed market share and leverage analysis it performed.

The most likely scenario, according to the financial services firm, is that BAT acquires Imperial but divests its U.S. assets, ITG Brands, in a tax-free spin-off to shareholders, and sells some of the companies’ brands in certain markets to address anti-trust concerns.

Wells Fargo believes Philip Morris could play a key role in this transaction since it would likely be interested in brands such as Davidoff.

Neither PM nor JTI would be interested in buying ITG, according to Wells Fargo.

The firm believes ITG Brands could be valued at as much as $12 billion.

A BAT-Imperial deal would result in a stronger, more rational global competitive environment, according to the bank, ultimately driving better industry pricing.