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Will Reynolds-British American Merger be a Reality Soon?

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The highly anticipated tobacco merger between Reynolds American Inc. and British American Tobacco (BTI - Free Report) seem to have cleared the antitrust hurdles from the U.S authorities. The two participating companies have announced that the U.S. Department of Justice or the Federal Trade Commission has not asked for any additional information regarding the proposed merger within the waiting period, which has now expired. However, the deal expected to close in the third quarter of 2017, is still subject to shareholder approval from the participating companies.

Reynolds American entered into a merger agreement with British American Tobacco in Jan 2017, 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 British American Tobacco American Depositary Shares representing 0.5260 of British American Tobacco’s ordinary share.

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 combined entity will own a global portfolio including next generation products and strong cigar brands including Newport, Kent from British American Tobacco 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. The two companies will complement each other as 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.Consequently, the new merged entity can develop an innovative pipeline of vapor and tobacco-heating products.

The tobacco industry has frequently undergone massive restructuring with major players merging or spinning off part of their entity, resulting in market consolidation.  This has led to handful of companies commanding a very strong international presence. 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) spinning off Philip Morris International Inc. (PM - Free Report) in 2008 into a separate legal entity which was until then part of Altria Group.

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Altria Group, Inc. (MO) - free report >>

Philip Morris International Inc. (PM) - free report >>

British American Tobacco p.l.c. (BTI) - free report >>

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