London, UK (BBN)– British American Tobacco (BAT) is planning to merge with its US partner Reynolds in a deal valued at $47bn (£38bn).
BAT wants to buy the 57.8 per cent of Reynolds it does not already own, reports BBC.
The merger would bring together some of the tobacco industry’s best-known brands, including 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 $20bn in cash and $27bn in shares for the US business.
It estimates that it can make $400m worth of cost-savings through the merger, which will give the British business access to Reynolds’ production facility in Tobaccoville, North Carolina.
BAT has not yet held talks with Reynolds and said the merger would have to be approved by all the US company’s independent directors.
However, shares in BAT opened 2.3 per cent higher Friday morning.
Earlier this year, BAT executives, in response to speculation it could be looking for a deal, said they didn’t see any major industry consolidation in the short to medium term, the Wall Street Journal reported,
Accepting Reynolds shareholders will get $24.13 in cash, and 0.5502 British American Tobacco shares worth $32.37 for each share held.
Separately, British American Tobacco said the trading environment in a number of key markets remains challenging, with foreign exchange continuing to hurt the cost of sales at a transactional level.
The company reported that revenue for the nine months ended Sept. 30 rose 8.1 per cent at constant exchange rates, or 6.2 per cent on an organic basis.
Cigarette volumes rose 2.2 per cent, or 0.9 per cent on an organic basis, in the nine-month period.