British American Tobacco is planning to merge with its US partner Reynolds in a deal valued at Sh4.8 trillion (US$47bn).
BAT wants to buy the 57.8% of Reynolds it does not already own.
The merger would bring together some of the tobacco industry’s best-known brands, including Lucky Strike, Rothmans, Dunhill and Camel cigarettes.
BAT has been a shareholder in Reynolds since 2004 and the company said the merger was “the logical progression in our relationship”.
The FTSE 100 company is offering Sh2 trillion (US$20bn) in cash and Sh2.7 trillion (US$27bn) in shares for the US business. This values Reynolds at Sh5,726.82 (US$56.50) a share, compared to its closing price of $47.17 on Thursday.
BAT estimates that it can make Sh40 billion (US$400m) worth of cost-savings through the merger, which includes assets such as Reynolds’ production facility in Tobaccoville, North Carolina.
BAT has held a significant stake in the company for 12 years after merging its US operations, known as Brown & Williamson, with RJ Reynolds. A new parent company was established at the time, of which BAT owns a 42.2% share.
RJ Reynolds has been operating since 1875 and is the second largest tobacco company in the US after Altria, which owns Philip Morris USA.
Last year, Reynolds completed its Sh2.5 trillion (US$25bn) takeover of US rival Lorillard. The combined company was forced to sell off a number of brands, including Kool, Salem and Winston, to satisfy regulators. They were eventually bought by Britain’s Imperial Tobacco for Sh719 billion (US$7.1bn).
BAT also released results for the first nine months of the year on Friday which showed that revenue rose by 8.1% on a constant currency basis.
The company said there would be an impact from the fall in sterling against the dollar and that trading remained “challenging” in a number of key markets.
Shares in BAT rose nearly 3% to £49.40 in early trading. (BBC)