British American Tobacco (BAT) is looking to put the big in "big tobacco" with a potential merger to create a £150bn transatlantic behemoth.
The company has submitted a $47bn (£38bn) offer to buy the 58 per cent of US rival Reynolds it does not already own, says the Financial Times.
As of this morning, BAT, which has brands including Dunhill and Lucky Strike, had a market value of around £90bn. Reynolds, which owns Camel among others, had a market capitalisation of around $80bn (£65bn).
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The FT says Reynolds is "interested" in the approach but wants more than the price currently on the table, which represents a 20 per cent premium to its closing price yesterday.
BAT is said to be amenable to upping its bid, although news that it would need to stump up more prompted investors to reverse a five per cent advance in its share price to a 1.2 per cent decline this afternoon.
Analysts said the deal has long been anticipated, not least because of the two firms' historic ties.
BAT was a major player in the US market until it "folded its US subsidiary Brown & Williamson… into Reynolds for a large minority stake" 12 years ago. The deal would once again make the United States the company's largest market.
"We always expected this deal to happen eventually, but we are surprised by the timing," brokers at Citi said.
Big tobacco companies have been in consolidation mode for years, amid sustained tightening of regulation around the world and declining smoking rates.
The FT says this led many to focus on emerging countries, but the rise in "vaping" and reduced litigation risk in the US is once again making this a growth market.
Guy Ellison, the head of UK equities at Investec Wealth & Investment, said the "strategic rationale makes perfect sense, pivoting BAT further towards the high value US market, consolidating some strong brands and Reynolds’ position in next generation tobacco".
