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).
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
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".
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.
-
Labour shortages: the ‘most urgent problem’ facing the UK economy right nowSpeed Read Britain is currently in the grip of an ‘employment crisis’
-
Will the energy war hurt Europe more than Russia?
Speed Read European Commission proposes a total ban on Russian oil
-
Will Elon Musk manage to take over Twitter?
Speed Read The world’s richest man has launched a hostile takeover bid worth $43bn
-
Shoppers urged not to buy into dodgy Black Friday deals
Speed Read Consumer watchdog says better prices can be had on most of the so-called bargain offers
-
Ryanair: readying for departure from London
Speed Read Plans to delist Ryanair from the London Stock Exchange could spell ‘another blow’ to the ‘dwindling’ London market
-
Out of fashion: Asos ‘curse’ has struck again
Speed Read Share price tumbles following the departure of CEO Nick Beighton
-
Universal Music’s blockbuster listing: don’t stop me now…
Speed Read Investors are betting heavily that the ‘boom in music streaming’, which has transformed Universal’s fortunes, ‘still has a long way to go’
-
EasyJet/Wizz: battle for air supremacy
Speed Read ‘Wizz’s cheeky takeover bid will have come as a blow to the corporate ego’
