British American Tobacco makes $47bn offer to merge with Reynolds
Oct 22 2016 by Desiree Burns
Tobacco giant BAT targets United States with $47bln Reynolds bid was posted in Business of TheNews International - https://www.thenews.com.pk on October 22, 2016 and was last updated on October 22, 2016.
The company already owns 42 percent of Reynolds, and is offering to pay $56.50 per share.
The British pound has sold off sharply against the euro, USA dollar and other currencies since the vote.
Shares in Reynolds rose to US$57, up 21%, in pre-market trading.
The acquisition would be the largest purchase made initiated by a British company after the 23 June referendum when the kingdom chose to leave the EU. Jefferies Group analyst O. Bennett now anticipates that the brokerage will post earnings of $2.28 per share for the year, down from their prior forecast of $2.30. The shares were sold at an average price of $48.03, for a total value of $31,718,291.55.
Nigel Driffield, professor of worldwide business at Warwick Business School, said the deal was also "likely to lead to increased production of BAT's United Kingdom brands in the USA, with fewer exports to the U.S. from the UK". "I think that probably the consolidation just reinforces that fact".
Reynolds, based in Winston-Salem, North Carolina, has yet to respond to the unsolicited offer. In accordance with US securities laws, BAT announced its merger proposal promptly after it was made to the RAI's board. According to Cameron, Crew is also an experienced dealmaker; Cameron said her soon-to-be replacement "played a critical role in the very successful integration of Newport into R.J. Reynolds' brand portfolio and operation's footprint".
The second-biggest USA tobacco group said on Friday it would consider the cash-and-share offer from its overseas peer, which already owns 42 percent of the company.
The deal would create the world's largest listed tobacco company by net turnover and operating profit, BAT said in a statement.
"The strategic rationale makes ideal sense", Guy Ellison, an analyst at Investec Wealth & Investment, said.
Combined Next Generation Products (NGP) and research and development capabilities to deliver a world class pipeline of vapor and tobacco heating products across all the fastest-growing NGP markets globally.
BAT, founded in 1902, sold 663 billion cigarettes in more than 200 countries past year and generated revenue of 13.1 billion pounds ($16 billion).
Investing in tobacco stocks is not for everyone, certainly not ethical investors.
"M&A has been central to the industry's success in recent years, as companies look to grow scale in the face of ever increasing competition".
BAT said it would drop its takeover pursuit of Reynolds if the USA company opposes a friendly transaction.
Reynolds, which bought Newport-maker Lorillard in 2014, and Altria Group dominate the us market. Yet several cases have now been settled, which has led analysts to speculate that worldwide players could return. Yet their addictive nature and high profit margins make them a profitable business.
BAT estimates the merger will generate 400 million dollars worth of savings.
BAT also said on Friday it had performed well in the first nine months of the year, raising both revenue at constant rates of exchange and cigarette volumes.