Reynolds Said To Reject BAT’s $47 Billion Acquisition Proposal
Reynolds American Inc., the second-largest cigarette seller in the U.S., is seeking a higher price from British American Tobacco Plc after rejecting a $47 billion buyout offer as too low, according to people familiar with the matter.
The tobacco giants are in talks and BAT is willing to increase the offer slightly, said the people, who asked not to be named because the details aren’t public. BAT, which already owns 42 percent of Reynolds, disclosed its proposal to acquire the rest of the company on Oct. 21.
Spokesmen for BAT and Reynolds declined to comment. BAT’s shares rose 0.5 percent in early London trading Tuesday. Reynolds closed down 1 percent at $53.05 Monday in New York.
“This is playing out as we expected,” Mirco Badocco, an analyst at RBC Europe, said in a note. “We’ve always regarded the first offer as the initial step in the negotiation process and believe BAT will need to increase the offer price.”
The transaction would let BAT overtake Philip Morris International Inc. as the world’s largest publicly traded tobacco business. It also would give the London-based company a strong foothold in the U.S. and access to Reynolds’s leading electronic-cigarette position. China National Tobacco Corp., run by China’s State Tobacco Monopoly Administration, is the biggest tobacco company overall.
BAT’s unsolicited cash-and-stock offer of $56.50 a share represented about a 20 percent premium to Reynolds’s closing price the previous day. But BAT only plans to pursue the deal with Reynolds’s support. Ten days after the offer was announced, Reynolds created a transaction committee to consider the proposal.
“We see the BAT deal happening with an increased offer,” Jefferies International analyst Owen Bennett said in a note, as the two companies are “the perfect match,” given the attractiveness of the U.S. market.
The offer is the latest in a run of tobacco mergers, as companies facing smoking declines around the world seek to increase market share and create alternatives to traditional cigarettes. Reynolds completed its $25.9 billion acquisition of Lorillard Inc. in June 2015.
BAT has owned its current stake in Reynolds since the Winston-Salem, North Carolina-based company was created in 2004. It helped to fund Reynolds’s takeover of Lorillard, which helped BAT maintain its 42 percent stake in the Camel maker. The companies already work together on vapor products. BAT estimated the transaction would create cost synergies of about $400 million.
BAT Chief Executive Officer Nicandro Durante wrote in the offer letter that he would have preferred to propose the takeover confidentially, but it was required to announce the move for regulatory reasons. Reynolds directors who were not appointed by BAT must back the bid in order for it to move forward, he said.
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