The Mega Merger Proposal Between BAT And Reynolds Explained
Reynolds American (NYSE: RAI), a US-based o company, confirmed on Friday it has received an offer from British American Tobacco (NYSE: BTI) to acquire the remaining 58 percent of Reynold’s stock that it currently does not own.
Reynolds’ Board of Directors will evaluate the offer and respond accordingly.
British American Tobacco (BAT) already owns 42.2 percent of Reynolds and made its intentions clear on Friday that it wants to acquire the remaining 57.8 percent in a transaction that values Reynolds’ stock at $56.60 per share.
Reynolds’ stock closed for trading on Thursday at $47.17 and opened Friday’s trading session at $56.65. However, the stock erased some of its gains and was trading at around $54.00 per share late Friday afternoon implying a discount to BAT’s offer price.
As part of the acquisition, BAT would pay Reynolds’ investors $24.13 in cash for each shares owned and 0.5502 BAT shares (valued at $32.37). As a whole, Reynolds investors would receive $47 billion, of which around $20 billion would be delivered to shareholders in the form of cash and $27 billion in BAT’s stock.
The deal represents a premium of around 20 percent based on Reynolds’ closing price on Thursday and values the entire company with an Enterprise Value of $93 billion.
BAT justified its proposal, noting that the full integration of Reynolds would generate a “truly global tobacco and Next Generation Products company.” The combined entity will boast: 1) a leading position in the US tobacco market and the largest global profit pool with strong growth dynamics, excluding China, 2) a strong presence in high growth areas in South America, Africa, the Middle East and Asia, 3) a unique portfolio of strong brands, including Newport, Kent and Pall Mall, 4) a strong pipeline of vapour and tobacco heating products, 5) the world’s largest listed tobacco company by net turnover and operating profit.
Furthermore, BAT expects the deal to be accretive to its earnings in the first year and accretive to its dividends per share.
BAT’s Chief Executive, Nicandro Durante commented:
“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US market. 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.”