Reynolds To Evaluate $47 Bln BAT Offer For Remaining 57.8% Stake

(RTTNews) - Reynolds American Inc. (RAI) on Friday confirmed that British American Tobacco plc (BATS.L, BTI) has offered to buy the remaining 57.8 percent stake that it does not own in the US tobacco company for $47 billion. Reynolds said its board of directors will evaluate the offer, and respond accordingly to BAT, which currently owns 42.2 percent stake in Reynolds. The proposal represents an enterprise value of $93 billion for Reynolds.

In pre-market activity, Reynolds' shares were gaining around 19.38 percent to $56.31, and BAT shares were gaining 1.70 percent to $120.14. In London trading, BAT shares were gaining 3.07 percent.

Earlier in the day, BAT announced a proposed merger that values Reynolds at $56.50 per share. The company offers $24.13 in cash and 0.5502 shares of BAT for each Reynolds share. The proposed per share price represents a 20 percent premium to the closing share price on October 20.

The proposed transaction is expected to be effected through a U.S. statutory merger in which Reynolds shareholders, other than BAT, would receive the offered per share price.

Of the total proposed consideration of $47 billion, approximately $20 billion would be in cash and $27 billion in BAT shares.

The company noted that the U.S. securities law required BAT to announce its merger proposal promptly after it was made to the Board of Reynolds. As a result, BAT has been unable to have prior negotiations with Reynolds regarding the proposal.

BAT said the proposal is earnings accretive in the first full year, including modest cost synergies and is expected to result in an accretive dividend per share for shareholders.

According to BAT, the combined company would be the world's largest tobacco and Next Generation Products business by net turnover and operating profit.

The company further said the combined company would maintain a strong financial profile, with a target of maintaining a solid investment grade credit rating and enhanced cash generation.

The proposed merger is subject to endorsement of Reynolds's independent directors, not designated by BAT, and approval by BAT and Reynolds shareholders.

BAT's Chief Executive Nicandro Durante 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."