BAT swoop for Reynolds will create world's largest listed tobacco company
Dunhill and Lucky Strike maker British American Tobacco has agreed to pay 49.4 billion US dollars (£40.8 billion) to take full control of US rival Reynolds in a deal creating the world's largest listed tobacco company.
The mega-merger comes after months of talks between the pair and sees BAT, which already owns 42.2% of Reynolds, unveil a higher offer of 59.64 US dollars (£49.27) a share for the remaining 57.8% of the company.
It brings together a raft of global brands, including BAT's Rothmans, Kool and Kent, and Reynolds' brands such as Camel, Newport, Pall Mall, Doral, Misty and Capri slims.
The takeover comes after BAT's original advances were rebuffed, with a 47 billion US dollar (£38.8 billion) approach rejected by Reynolds in November.
BAT said the merged group will be a "stronger, truly global" company, combining BAT's international and emerging market strength with Reynolds' US focus.
By buying Reynolds, it also gives BAT a strong position in the highly-competitive e-cigarette market.
BAT chief executive Nicandro Durante said the deal " will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world".
It will mark the return of BAT to the lucrative US market more than 12 years after folding its American subsidiary Brown & Williamson into Reynolds in return for a large minority stake.
The cash-and-shares offer values Reynolds at more than 85 billion US dollars (£70.2 million).
BAT is targeting cost savings of at least 400 million US dollars (£330 million) after the two companies merge.
It said it does not expect significant job losses, given there is very little overlap in the workforces, while the Reynolds management team are also set to remain with the merged group.
The majority of savings will come from stripping out costs in buying raw materials, such as tobacco leaf, paper and packaging.
It said it would also look to make savings across product development and other "corporate costs".
The merged company will be listed in London, with a secondary listing in Johannesburg.
If given the green light, the deal is expected to complete in the third quarter of the year.
BAT needs at least 50% of Reynolds shareholders to approve the offer, excluding BAT.
The firms have agreed a so-called break fee of up to one billion US dollars (£825 million) if either party pulls out or if the deal is blocked by regulators.
Jonathan Buxton, partner and head of consumer and retail at Cavendish Corporate Finance, said the Reynolds takeover comes amid "challenging times" for the tobacco industry as tobacco firms have battled against "years of litigation and the loss of consumer interest".
"We can expect more similar 'big player' deals to follow," he added.