British American Tobacco offers to buy Reynolds in $47B deal

British American Tobacco offered Friday to buy Reynolds American Inc. in a $47 billion US cash-and-stock deal that would create the world's largest publicly traded tobacco company and bring together brands like Camel, Dunhill, and Newport.

The logic of the deal, analysts say, is to make up for a decline in smoking in the firms' home markets of the U.S. and Britain as they look to developing countries and new products, such as electronic cigarettes.

The London-based company offered to buy the 57.8 per cent of Reynolds it doesn't already own for the equivalent of $56.50 per share, 20 per cent more than Thursday's closing price. Investors would receive $24.13 in cash and 0.5502 of a BAT share for each Reynolds share they own.

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The deal values Reynolds, based in Winston Salem, North Carolina, at $93 billion US.

Shares in Reynolds jumped about 18 per cent to $55.50 in premarket trading in New York, while BAT was up 2.8 per cent to 49.39 pounds in London.

The deal would unite BAT's global operations with the second-largest tobacco company in the United States. While BAT sells Dunhill, Rothmans and Kent cigarettes around the world, Reynolds' Newport, Camel and Pall Mall are among the top four brands in the U.S.

Looking to profit from e-cigarettes

The merger "is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next generation products company," BAT Chief Executive Nicandro Durante said, referring to the firms' expansion into electronic cigarettes.

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The deal would give the new company a leading position in the United States and a greater presence in high-growth markets including South America, the Middle East, Asia and Africa.

Those developing countries are especially important as smoking habits weaken in Europe and the U.S., where pressure from health groups is stronger, analysts say.

"The markets in which these firms are the dominant players are declining, and they face ever increasing competition from Asia in seeking to develop new markets," saidNigelDriffield, professor of international business atWarwickBusiness School in England.

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BAT said it had announced the offer before conducting any negotiations with Reynolds to comply with U.S. law. The deal would have to be approved by the independent directors of Reynolds and shareholders of both companies.

BAT employs more than 50,000 people globally and operates in 200 markets and has a portfolio of 200 brands.