BAT To Buyout Reynolds In $49.4 Bln Cash, Stock Deal

(RTTNews) - British American Tobacco plc (BATS.L, BTI) Tuesday said it has agreed to buy the remaining 57.8 percent of Reynolds American Inc. (RAI) it does not already own in $49.4 billion cash and stock deal. The companies said the deal would create a stronger, truly global tobacco and Next Generation Products company.

The British tobacco major, which currently owns 42.2 percent of Reynolds, has agreed on the terms of a recommended offer, in which it will pay $59.64 per Reynolds share, comprising $29.44 in cash and 0.5260 BAT ordinary shares. The total purchase price comprises approximately $24.4 billion in cash and $25.0 billion in BAT ADRs.

The initial proposal, which was rejected by Reynolds, offered $56.50 per Reynolds share, or $47 billion in total.

The newly agreed per share price represents a premium of 26 percent over the closing price of Reynolds stock on October 20, being the last day prior to BAT's announcement of a proposal to merge with Reynolds, the number two player in the US market.

The transaction is expected to be accretive to adjusted earnings per share in the first full year, targeting mid-single digit earnings per share accretion in year 3, and to beat the group WACC for the US by year 5.

The Boards of both companies have approved the deal, and will recommend the transaction to their respective shareholders. The transaction will be effected through a US statutory merger, and is expected to close during the third quarter.

A break fee of up to $1 billion is payable by either BAT or Reynolds under certain circumstances.

BAT anticipates realizing at least $400 million in annualised cost synergies by the end of third year. The delivery of these synergy benefits, together with the opportunity for profitable growth in the US market, further supports BAT's commitment to margin enhancement of 50-100 basis points on average, per annum, it said.

Following the deal closure, three of the non-BAT nominated Reynolds directors are expected to join the BAT Board.

BAT will finance the cash component of the transaction by a combination of existing cash resources, new bank credit lines and the issuance of new bonds. A $25 billion acquisition facility has been entered into with a syndicate of banks to provide financing certainty.

BAT's Chief Executive, Nicandro Durante, said, "We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team's strategy, including its acquisition of Lorillard, which we supported with our own investment in 2015."

In the pre-market on the NYSE, Reynolds shares were gaining 4.16 percent at $58.30.

In London, BAT shares were trading at 4,752 pence, down 0.22 percent.