The offer to acquire the remaining 57.8% of the company was for $20bn in cash and the remainder in BAT shares, which was priced at a 20% premium to Reynolds’ closing share price of the day before (20 October) and represented an earnings multiple of 16.3x.
Guy Ellison, head of UK equities at Investec Wealth & Investment, said the move made sense, strategically, but the timing was “a surprise”
“The strategic rationale makes perfect sense, pivoting BAT further towards the high value US market, consolidating some strong brands and Reynold’s position in next generation tobacco.
“Despite relatively modest synergies, the deal is still seen adding value for shareholders in the first full-year after completion. The ball is now in the court of Reynold’s board and shareholders to consider the offer.”
BAT shares had risen 3.5% by midday on the day of the bid (21 October) to $49.70 while Reynolds American share were up 1.9% to $47.17.
The Reynolds American board of directors said it was evaluating the offer and would respond accordingly.
Nicandro Durante, chief executive at BAT, said: “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."