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Reynolds Agrees to Merge with British American Tobacco
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Tobacco giant, Reynolds American Inc. has finally agreed to the merger proposal of British American Tobacco (BTI - Free Report) , under which the latter will take over the remaining 57.8% of Reynolds for $49 billion. The deal comprises of $29.44 cash and a number of BAT American Depositary Shares representing 0.5260 of British American Tobacco’s ordinary share. Investors were buoyed by the news, evident from the share rally of 3% on Jan 17, 2017 after Reynolds expressed its consent to the proposal. However, the deal, expected to close in the third quarter of 2017, is still subject to shareholder approval from the participating companies, as well as regulatory approvals and other customary closing conditions.
Nevertheless, we believe that the merger is not anticipated to face too many antitrust hurdles. While Reynolds has most of its operations in the U.S., British American Tobacco apart from its stake in Reynolds mostly operates outside the country.
Earlier in Oct 2016, British American Tobacco offered to buy the remaining part of Reynolds in order to expand in US. Reynolds’ board of directors formed a transaction committee to negotiate with BAT, given the latter’s existing ownership stake and representation on the board of directors. Reynolds’ shares have experienced an uptrend after British American Tobacco expressed its intention of a buyout in Oct 2016. The company’s shares have gained 24.6% in the past three months, outperforming the Zacks categorized Tobacco industry, which has witnessed a gain of 5%.
The combined entity will truly own a global portfolio including next generation products and strong cigar brands including Newport, Kent from BAT and Camel and Pall Mall from Reynolds. Further, the combined company will benefit from Reynolds’ strong position in the alternative tobacco and next-generation product development, and R&D capabilities. Consequently, the new merged entity can develop an innovative pipeline of vapor and tobacco-heating products.
In 2003, U.S.'s RJ Reynolds Tobacco Holdings and British American Tobacco’s Brown & Williamson Tobacco Corp. merged to create Reynolds American Inc., in which the latter maintained 42% share in the combined entity.
The tobacco industry has frequently undergone through massive restructuring with major players merging or spinning off part of their entity, resulting in market consolidation translating in to a very strong international presence by handful of companies. Notable mergers and spin-offs include that of British American Tobacco’s and Rothman’s in 1999, UK-based Imperial Tobacco's acquisition of Germany's Reemtsma in 2002 and Reynolds takeover of Newport owner Lorillard in 2014. Another major development worth mentioning includes that of Altria Group Inc.’s (MO - Free Report) spin off Philip Morris International Inc. (PM - Free Report) in 2008 into a separate legal entity which was until then part of Altria Group.
Notably, the Zacks Rank #4 (Sell) company has been experiencing lower-than-expected top-line and bottom-line results in the past few quarters, primarily due to general shift of consumption away from tobacco products. We expect the takeover to help the company turn around in the near future.
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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Reynolds Agrees to Merge with British American Tobacco
Tobacco giant, Reynolds American Inc. has finally agreed to the merger proposal of British American Tobacco (BTI - Free Report) , under which the latter will take over the remaining 57.8% of Reynolds for $49 billion. The deal comprises of $29.44 cash and a number of BAT American Depositary Shares representing 0.5260 of British American Tobacco’s ordinary share. Investors were buoyed by the news, evident from the share rally of 3% on Jan 17, 2017 after Reynolds expressed its consent to the proposal. However, the deal, expected to close in the third quarter of 2017, is still subject to shareholder approval from the participating companies, as well as regulatory approvals and other customary closing conditions.
Nevertheless, we believe that the merger is not anticipated to face too many antitrust hurdles. While Reynolds has most of its operations in the U.S., British American Tobacco apart from its stake in Reynolds mostly operates outside the country.
Earlier in Oct 2016, British American Tobacco offered to buy the remaining part of Reynolds in order to expand in US. Reynolds’ board of directors formed a transaction committee to negotiate with BAT, given the latter’s existing ownership stake and representation on the board of directors. Reynolds’ shares have experienced an uptrend after British American Tobacco expressed its intention of a buyout in Oct 2016. The company’s shares have gained 24.6% in the past three months, outperforming the Zacks categorized Tobacco industry, which has witnessed a gain of 5%.
The combined entity will truly own a global portfolio including next generation products and strong cigar brands including Newport, Kent from BAT and Camel and Pall Mall from Reynolds. Further, the combined company will benefit from Reynolds’ strong position in the alternative tobacco and next-generation product development, and R&D capabilities. Consequently, the new merged entity can develop an innovative pipeline of vapor and tobacco-heating products.
In 2003, U.S.'s RJ Reynolds Tobacco Holdings and British American Tobacco’s Brown & Williamson Tobacco Corp. merged to create Reynolds American Inc., in which the latter maintained 42% share in the combined entity.
The tobacco industry has frequently undergone through massive restructuring with major players merging or spinning off part of their entity, resulting in market consolidation translating in to a very strong international presence by handful of companies. Notable mergers and spin-offs include that of British American Tobacco’s and Rothman’s in 1999, UK-based Imperial Tobacco's acquisition of Germany's Reemtsma in 2002 and Reynolds takeover of Newport owner Lorillard in 2014. Another major development worth mentioning includes that of Altria Group Inc.’s (MO - Free Report) spin off Philip Morris International Inc. (PM - Free Report) in 2008 into a separate legal entity which was until then part of Altria Group.
Notably, the Zacks Rank #4 (Sell) company has been experiencing lower-than-expected top-line and bottom-line results in the past few quarters, primarily due to general shift of consumption away from tobacco products. We expect the takeover to help the company turn around in the near future.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>