BAT proposes to buy Reynolds

British American Tobacco (BAT) has proposed to buy the 57.8 percent share of Reynolds that it does not already own.

U.S. securities laws require BAT to announce its merger proposal promptly after it was made to the board of Reynolds.  As a result, BAT has been unable to have prior negotiations with Reynolds regarding the proposal.

BAT’s proposal values Reynolds at $56.50 per share, which represents a premium of 20 percent over the closing price of Reynolds common stock on Oct. 20.

According to BAT, the merger would create a stronger, truly global tobacco and next-generation products (NGP) company with:

• A leading position in the U.S. tobacco market, the largest global profit pool outside of China with strong growth dynamics.
• A significant presence in high-growth emerging markets across South America, Africa, the Middle East and Asia, together with the most attractive developed markets.
• A unique portfolio of strong brands, including Newport, Kent and Pall Mall.
• Combined NGP and R&D capabilities to deliver a world-class pipeline of vapor and tobacco- heating products across all the fastest growing NGP markets globally.
• Creating the world’s largest listed tobacco company by net turnover and operating profit.

BAT believes there is a strong financial rationale for the transaction that supports long-term delivery for all stakeholders:

The company says its offer is a premium one, supported by modest cost synergies, with a significant share consideration enabling participation in the long-term benefits. It is earnings accretive in the first full year is expected to be accretive to dividends per share. According to BAT, the transaction would create a broader, larger business, delivering more diversified sources of profit growth. The combined company, it says, would maintain a strong financial profile, with a target of maintaining a solid investment grade credit rating and enhanced cash generation.

The proposed transaction would be effected through a U.S. statutory merger in which Reynolds shareholders, other than BAT, would receive $24.13 in cash and 0.5502 BAT shares for each of their Reynolds shares.

The total consideration for the remaining 57.8 percent of Reynolds would be $47 billion, of which approximately $20 billion would be in cash and $27 billion in BAT shares.

The proposed merger is subject to endorsement of Reynolds’s independent directors (not designated by BAT) and approval by BAT and Reynolds shareholders.

“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the U.S. market,” says BAT’s CEO Nicandro Durante commented.

“The acquisition of Lorillard in 2015 has further strengthened Reynolds’s business. The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and Next Generation Products company. BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future.”