$49 billion deal to create world's largest publicly traded tobacco company

WINSTON-SALEM, N.C. — Reynolds American Inc. (RAI), parent of the second-largest U.S. tobacco company, has agreed to be acquired by British American Tobacco plc (BAT) in a deal valued at more than $49 billion.

RAI said Tuesday that the merger will create a stronger global tobacco company, bringing together the Newport, Camel and Pall Mall cigarette brands of its R.J. Reynolds Tobacco Co. subsidiary with London-based BAT’s Kent, Lucky Strike, Dunhill and Rothmans tobacco brands. The companies said their combined next-generation product development and R&D capabilities also will establish an innovative pipeline of vapor and tobacco-heating products, delivering an array of new product options for adult tobacco consumers.

Under the agreement, BAT will buy the 57.8% of RAI common stock it doesn’t currently own for $29.44 per share in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share, currently worth $30.20 per share based on the BAT closing share price as of Jan. 16 and the corresponding dollar-sterling exchange rate. The BAT American Depositary Shares will be listed on the New York Stock Exchange, and RAI shareholders will own about 19% of the combined company.

RAI had rejected an initial offer of about $47 billion from BAT in November. The companies said the new offer represents a 26.4% premium to RAI’s closing stock price as of Oct. 20, the day before BAT’s first bid was made.

“Through this transaction, we form an industry leader that will focus on innovation and brand building,” stated Susan Cameron, executive chairman of RAI. “This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products.”

Besides R.J. Reynolds Tobacco, RAI’s businesses include Santa Fe Natural Tobacco Co., the maker of Natural American Spirit products; American Snuff Co., the nation’s second-largest manufacturer of smokeless tobacco products, including the Grizzly and Kodiak brands; Niconovum nicotine replacement therapy products under the ZONNIC brand; and R.J. Reynolds Vapor Co. digital vapor cigarettes under the VUSE brand.

“We look forward to bringing together the two companies’ highly complementary cultures and shared commitment to innovation and transformation in our industry,” commented Debra Crew, RAI president and chief executive officer. “British American Tobacco is the best partner for Reynolds American’s next phase of growth, and together the two companies will create the leading portfolio of tobacco and next-generation products for adult tobacco consumers.”

The merger would make BAT the world’s largest publicly traded tobacco company by sales and market value. BAT has more than 200 tobacco brands in its global portfolio, and its products are sold in over 200 markets, with leading positions in at least 55 markets worldwide.

“We are very pleased to have reached agreement with the board of Reynolds American as we believe that the combination of our two great companies has a very compelling strategic and financial logic that will provide a lasting benefit to shareholders, employees and all other stakeholders,” BAT chief executive Nicandro Durante stated. “This transaction will not only create a truly global business with a world-class portfolio of tobacco and next-generation products, but will also benefit from the highly talented and experienced employees in both organizations. We believe that this will drive long-term sustainable profit growth for the benefit of all shareholders.”

RAI and BAT said they expect the transaction to close in the third quarter, pending shareholder approval from both companies, regulatory approvals and other customary closing conditions.