British American Tobacco has made an unsolicited offer to rival Reynolds American Inc. to enable it buy out the remaining stake in the U.S. tobacco company.
The British multinational cigarette giant, which already has a 42.2 percent stake in Reynolds, said it has made a direct offer of $47 billion to the board of its American partner to enable it take over the remaining stake in the company. It disclosed there were no prior discussions with Reynolds management before making the offer.
BAT is offering both cash and stock for a price of $56.50 per share to buy out Reynolds, representing a premium of around 20 percent on the American company’s closing price on Thursday. The deal includes $20 billion in cash and $27 billion in stock and would put the value of the FTSE 100 firm at $81.3 billion.
In the offer, Reynolds’ shareholders will get $24.13 cash and 0.5502 BAT shares valued at $32.37 per share held, as reported by the Wall Street Journal.
The deal, if successful, will result in the world’s biggest listed tobacco company in terms of net sales. It would bring together some of the best-known, global tobacco brands, such as Rothmans, Camel, Lucky Strike and Dunhill.
BAT has been a Reynolds shareholder since 2004, when its American operations under the name Brown & Williamson were merged with RJ Reynolds. It said another merger would be a “logical progression in our relationship.”
The merger will be contrary to claims made by executives of the British tobacco company earlier this year that they didn’t expect to be involved in any major industry consolidation any time soon. It will mark the latest of big consolidations in the industry.
Reynolds has been a major actor in consolidation moves in the American market. It acquired U.S. rival Lorillard in a $25 billion deal last year. But it was forced by regulators to sell a number of its cigarette brands, including Salem, Kool and Winston, for the deal to be approved. Those brands and Lorillard’s Maverick were sold to British company Imperial Tobacco Group for $7.1 billion.
RJ Reynolds, which began operations in 1875, is the second-biggest tobacco maker in the U.S. It is surpassed only by Altria, owner of Philip Morris USA.
With a merger, BAT will gain control of Reynolds’ Tobaccoville, North Carolina production facility among other assets. It hopes to save $400 million in costs from the proposed acquisition.
Shares of the British tobacco giant were trading around 3 percent higher early Friday morning.
On Friday, BAT also released report of performance in the first three quarters of 2016. It said revenue for the period ended Sept. 30 climbed 8.1 percent at constant exchange rates; 6.2 percent on organic basis.
Cigarette volume during the nine-month period gained 2.2 percent.
BAT noted the challenges facing it in some of its top markets, especially as it concerns foreign exchange rate, which has continue to negatively impact on its sales. It said the slump in the value of the sterling against the U.S. dollar would have an impact on its trading.
The takeover deal would be the biggest foreign acquisition by a British company in several years, if it does eventually see the light of day.