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Smoking consolidation: British American Tobacco bids for Reynolds American


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Smoking consolidation: British American Tobacco bids for Reynolds American

A huge merger is in the offing in the cigarette world.

British American Tobacco wants to roll up the 58 percent of Reynolds American that it does not already own.

It is offering $47 billion (43 billion euros), $20 billion (18.4 billion euros) in cash and the rest in shares.

A tie-up would create the world’s number one listed tobacco company – bigger than Philip Morris -and the largest seller in the United States.

“The main reason for the deal is for BAT to be in the United States,” a company spokeswoman said, noting that BAT did not have a direct presence there.

Reynolds has yet to respond and said it would evaluate the unsolicited offer.

Declining, consolidating industry

There has been much consolidation in the industry as the number of smokers rates in the US and other western markets has fallen due to increasing health consciousness and greater regulation and taxes.

Jasper Lawler, an analyst at CMC Markets, said the companies serve different markets making them a good fit: “The reach is very global between the two and there’s actually not too much overlap. So it may not face the kind of regulatory hurdles in terms of competition that some of these companies do. But I think this is just necessary for the industry. It’s declining in a big part of the developed world and it needs to spread its access and be able to control prices a bit more.”

Diversification

To diversify, all big tobacco firms are investing in electronic cigarettes. BAT and Reynolds already cooperate in developing vaping products and BAT said building on the popularity of e-cigarettes was also a “motivation” behind the deal.

The companies say vaping is less dangerous than smoking – an activity that kills about six million people every year.

BAT is based in the UK and this would be biggest acquisition by a British company since the referendum decision to leave the European Union.

Since that vote in June, shares in BAT have soared to all-time highs as investors bet the falling pound would boost the profits of companies that make most of their revenue outside the United Kingdom. However that effect has been countered by the falling value of the pound.

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