British American Tobacco offers to buy Reynolds in $47B deal

LONDON - British American Tobacco is offering to take over Reynolds American Inc. in a $47 billion deal that would create the world’s largest publicly traded tobacco company and try to make up for a decline in smoking in the U.S. and Europe.

With tobacco firms under pressure from health groups in developed economies and increasingly popular electronic cigarettes, a merger of this size would help them consolidate costs and resist competition from Asia, analysts say.

A deal would bring under one roof BAT’s brands including Dunhill, Rothmans and Kent with Reynolds’ Newport, Camel and Pall Mall, which are among the top four brands in the U.S.

BAT, which is based in London, offered Friday to buy the 57.8 percent of Reynolds it doesn’t already own for the equivalent of $56.50 per share, 20 percent more than Thursday’s closing price. Investors would receive $24.13 in cash and 0.5502 of a BAT share for each Reynolds share they own.

The deal values Reynolds, based in Winston Salem, North Carolina, at $93 billion.

Shares in Reynolds jumped about 20 percent to $56.50 in premarket trading in New York, while BAT was up 4.1 percent to 50 pounds in London.

The merger “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 Chief Executive Nicandro Durante said, referring to the firms’ expansion into electronic cigarettes.

Reynolds said in a statement that it will evaluate the offer.

The deal would give the new company a leading position in the United States but also a greater presence in high-growth markets including South America, the Middle East, Asia and Africa.

Those developing countries are especially important for tobacco companies as smoking habits weaken in Europe and the U.S., where pressure from health groups is stronger, analysts say.

“The markets in which these firms are the dominant players are declining, and they face ever increasing competition from Asia in seeking to develop new markets,” said Nigel Driffield, professor of international business at Warwick Business School in England.

BAT said it had announced the offer before conducting any negotiations with Reynolds to comply with U.S. law. The deal would have to be approved by the independent directors of Reynolds and shareholders of both companies.

BAT employs more than 50,000 people globally and operates in 200 markets and has a portfolio of 200 brands.