British American Tobacco Plc reached agreement to buy full control of Reynolds American Inc. with a sweetened $ 49.4 billion offer, bringing a successful end to almost three months of bartering with the maker of Camel cigarettes.
BAT increased the cash element of a cash-and-share bid for the 58 percent of Reynolds that it doesn't already own. The new offer values each Reynolds share at $ 59.64, the London-based company said Tuesday, more than the $ 56.50 it proposed on Oct. 21.
The combination marks the latest stage in a wave of consolidation for the tobacco industry, which is struggling with shrinking demand for traditional cigarettes and an uncertain pathway to new technologies. Reynolds is attractive to BAT because it's a leader in the nascent U.S. market for e-cigarettes.
The offer "makes sense strategically and operationally and just about washes its face financially," wrote Mirco Badocco, an analyst at RBC Europe.
BAT shares rose 1.2 percent to 4,820 pence at the start of London's trading day. Reynolds shares climbed 0.4 percent to $ 55.97 in New York on Friday, the most recent trading day.
BAT said a committee of independent Reynolds directors unanimously approved the offer, which will boost the U.K. company's earnings per share in the first year after completion.
The new offer of $ 29.44 in cash and 0.526 of a BAT share for each Reynolds share is about 5.6 percent higher than the previous one. Analysts have said a possible corporate tax cut by President-elect Donald Trump would justify an increase of as much as $ 8.2 billion in the bid.
BAT has held its current stake in Winston-Salem, North Carolina-based Reynolds since the U.S. company was created in 2004, and the two tobacco giants are close partners. BAT estimated that the transaction would create cost synergies of about $ 400 million.
Combined, the two companies would overtake Philip Morris International Inc., the maker of Marlboro, as the world's largest publicly traded tobacco company. It also would give the U.K. company a strong foothold in the U.S. and access to Reynolds's leading electronic-cigarette position. China National Tobacco Corp., run by China's State Tobacco Monopoly Administration, is the biggest tobacco company overall.
BAT has been at the forefront of industry consolidation. The company spent about $ 2.4 billion in 2015 on a buyout of its Brazilian Souza Cruz SA unit, and it previously part-funded Reynolds's takeover of Lorillard Inc. — a move that let BAT maintain its 42 percent stake in the maker of the Camel brand.
Centerview Partners, Deutsche Bank and UBS AG advised BAT on the deal, while JPMorgan Securities and Lazard acted for Reynolds.
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