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British American Tobacco (BAT) has proposed a $47bn merger with its US partner Reynolds to bring together brands such as Lucky Strike, Camel, Dunhill, Pall Mall and Newport.
The tobacco giant said in a stock exchange statement this morning that it wants to buy the 57.8% of Reynolds that it doesn’t already own.
BAT has made its proposal to the board of Reynolds but has yet to hold detailed discussions with its rival.
It has held a 42.2% stake in the business since 2004 and is offering $20bn in cash and $27bn in shares.
The $56.50 per share offer represents a premium of 20% over the closing price of Reynolds stock on 20 October and would create the world’s largest listed tobacco company by turnover and operating profit.
BAT added that it would make a “relatively modest” $400m of cost savings through the merger.
CEO 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. BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future.”
Reynolds completed a lengthy $25bn takeover of its US rival Lorillard last year, but was forced to sell off a number of brands, including Kool, Salem and Winston, to appease regulators, which were snapped up by Imperial Brands for $7bn.
BAT also reported revenues up 8.1% in the first nine months of the year in a third quarter trading update. Volumes also grew 2.2% to 497 billion as cigarette share increased in the group’s key markets.
Durante added that the group had performed well in the year to date. “Revenue at constant rates of exchange and cigarette volume both increased, driven by organic growth. The excellent momentum of our global drive brands continued, driving an increase in group market share. We have made significant progress in our next generation products, both in terms of geographic rollout and product development. The on-going transactional foreign exchange headwinds on our cost base remain a challenge, despite the translational tailwind as a result of recent movements in sterling. I remain confident that we are on track to deliver another year of good earnings growth at constant rates of exchange.”
BAT’s share price has leapt 3.5% to 4,973p this morning on the back of the merger proposal.
Morning update
It’s a typical quiet Friday morning on the London Stock Exchange.
On thegrocer.co.uk today we report that Müller UK & Ireland’s annual losses have jumped to more than £100m in 2015 as a tough dairy market hit sales. Revenues fell 4.2% to £1.34bn in the year to 31 December, from £1.4bn in 2014. The processor managed to grow volume market share in chilled yoghurts and potted desserts from 20.7% to 21.1%, but value share decreased from 22.5% to 22.1%, driven by deflationary pricing pressures.
Read the full story on the site later today.
Shares in BAT rival Imperial Brands (IMB) have also risen since markets opened by 2.3% to 3,950p. ABF is up another 1.4% to 2,563p and Reckitt Benckiser (RB) is also up 1% to 7,210p.
Yesterday in the City
Nestlé (NESN) shares closed yesterday 0.5% down at CHF 74.25, but had been down by more than 1.3% earlier in the day, after the Swiss food giant revised down its full-year growth targets as prices continued to fall in developed markets – not helped by the price war in the UK.
Airport and travel concession group SSP (SSPG) experienced a 1.1% uplift to 333.2p after its revealed a £60m joint venture with an Indian group to expand into airports in the country.
The FTSE 100 nudged up 0.1% to 7,026.90 points on the day the European Central Bank signalled no changes to its quantitative easing (QE), which ends next year.
Tesco (TSCO) shares fell back 2% to 210.7p after making 6% in gains this week following Kantar revealing its market share was back in growth. The supermarket stock is now up 30% in the past three months.
It was a fairly quiet day in terms of market news flow. Associated British Foods (ABF) was up 1.5% to 2,526p and Tesco aside the other significant faller was B&M (BME), down 1% to 237.5p.
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