BAT Set to Acquire Reynolds

BAT Set to Acquire Reynolds

Michael Talwar 19/07/2017 4

British American Tobacco (BAT) has come under fire from health campaigners after shareholders approved its buyout of American firm Reynolds on Wednesday, which will create the world’s biggest tobacco company.

 

 

Shareholders Back British American Tobacco Buying Reynolds

 

Shareholders of both companies approved the deal, which will take BAT back into the US market after a 12-year absence. It ends American ownership of Reynolds American Incorporated (RAI), a tobacco company headquartered in the US south since 1875. The move is also expected to speed up the development of e-cigarettes and vapes.  The deal was backed by nearly all shareholders who voted at a special meeting at the Hilton London Bankside in London (78.2% of investors voted). At Reynolds headquarters in Winston-Salem, North Carolina, meanwhile, the vast majority (82.%) of Reynolds shares approved the deal. BAT is buying the 57.8% of Reynolds it does not already own. The cash-and-stock offer announced in January valued each Reynolds share at $59.64, up from $56.50 offered in October.

The deal is expected to complete by next Tuesday. BAT is one of the multinational tobacco companies that have threatened governments in at least eight countries in Africa to block or dilute new regulations to limit the harm caused by smoking. BAT says it is not against all regulation but sometimes needed to intervene. The merger vote comes the same day that the World Health Organisation (WHO) released a report on tobacco companies push against anti-smoking laws worldwide. WHO’s director-general, Dr Tedros Adhanom Ghebreyesus, said “governments around the world must waste no time” in enacting the laws.

The deal brings together BAT’s Lucky Strike, Dunhill, Rothmans and Benson & Hedges cigarettes with Reynolds’ Pall Mall, Newport and Camel. But Deborah Arnott, chief executive of UK public health charity Action on Smoking and Health (ASH), was worried what the creation of an even bigger business would mean for the growing tobacco epidemic in poorer countries. By taking over Reynolds, BAT, already one of the top five companies in the FTSE 100, is now the largest tobacco company in the world.

 

An Exciting Deal for British American Tobacco 

 

Despite all the talk during the merger negotiations of the importance of ‘next generation products’ BAT is still clearly focused on flogging fags to low- and middle-income countries. As a result, it is hardly surprising that the tobacco epidemic is still growing in such countries rather than on the wane as it is in the UK and the US. Reynolds produces some of the bestselling cigarette brands in America, including increasingly popular menthol cigarettes under the Newport brand, as well as Camels. The company was founded as a chewing tobacco company in 1875 in Winston-Salem by Richard Joshua Reynolds.

The 2004 merger between Reynolds and BAT’s US subsidiary Brown & Williamson lead to the events Wednesday, but was not the companies’ first interaction. BAT has owned 42% of Reynolds since the company purchased Brown & Williamson 13 years ago. BAT’s initial purchase of Reynolds shares came with an agreement that it could not buy the remaining lot of Reynolds for 10 years. Reynolds currently employs about 2,000 people in the area, not including surrounding farms that supply tobacco to the companies. For many in Winston-Salem, where Reynolds has long been headquartered, the acquisition by the British giant has been expected for years. 

In fact, the two companies’ ties go back much further. At the beginning of the 20th century, the giant monopoly American Tobacco Company, headed by James “Buck” Duke, once controlled nearly all of the US tobacco market, including firms, such as Lucky Strike and Reynolds. In addition, American Tobacco Company struck an agreement with Imperial Tobacco in the UK. But in 1911, the US government succeeded in its efforts to break up the monopoly, and the American tobacco giant RJ Reynolds, as well as British American Tobacco, were born out of American Tobacco Company’s dissolution.

 

What's Next ?

 

Today, though smoking hasn’t retained the glamor it had in the 1960s, tobacco companies have remained profitable. In part, companies have been able to shift sales of cigarettes to less educated and poorer consumers. They have also weathered lawsuits and regulations of the 1990s. The merger will put profits from eight out of a 10 cigarettes sold in the US into the pockets of two companies, Marlboro-maker Altria and BAT. The merger has led to speculation that Altria could again be purchased by Philip Morris International, the larger company that spun-off the American affiliate.

The transaction is expected to complete on or around 25 July. British American Tobacco is excited to welcome Reynolds group employees, creating one stronger company.  The main aim of the acquisition is to create the next generation products business with direct access for tobacco products across the most attractive markets in the world.

Share this article

Leave your comments

Post comment as a guest

0
terms and condition.
  • Ilan Miguel

    This is a fantastic deal for British American Tobacco. I can't wait to test their new products ;)

  • Anderson Santos

    British American Tobacco sold fewer cigarettes over the past six months. By acquiring Reynolds, they will boost their numbers !

  • Daniela Moraïs

    The deal was backed at the Hilton London Bankside with 78.2% of investors voting :o

  • John Lauren

    BAT is thriving despite many predictions of the industry’s decline. A casual observer could be forgiven for believing that the tobacco industry is itself on its last legs.

SHARE THIS ARTICLE

Michael Talwar

Finance Guru

Michael is a portfolio administrator at M&L Capital Management Ltd. He holds a master’s degree in investment management from Cass Business School. He previously worked at Ralph Lauren as an analyst. Originally a follower of Benjamin Graham, Michael has always been interested in combining a mix of looking for underlying value in the fundamentals of companies, whilst considering this with a view of the wider global economy.

   

Latest Articles

View all
  • Science
  • Technology
  • Companies
  • Environment
  • Global Economy
  • Finance
  • Politics
  • Society