On January 17, British American Tobacco (BAT) announced its agreement to a $49.4bn takeover deal with rival cigarette manufacturer Reynolds American. BAT, which already owns a large stake in Reynolds, will acquire the remaining 57.8 percent of the company, paving the way for BAT to enter the lucrative US market. According to Bloomberg, the merger will also see BAT save on operating costs of up to $400m.
The strategic move to consolidate the company is not novel for BAT; in 2015 the company spent $2.45bn on a merger with Brazil’s largest tobacco company, Souza Cruz. Similarly, in the same year, BAT was described by reporters as, “the real winner in the Lorilland takeover”, having investing $4.7bn in Reynolds American to retain its original 42 percent stake in the company.
With smoking bans across the west shrinking the cigarette industry, this multi-billion-dollar merger will have a ripple effect on other companies, including Phillip Morris and Japan Tobacco. As Steve Clayton from analyst firm Hargreaves Lansdown told the BBC: “The sheer scale of the enlarged BAT raises the pressure on the remaining players to bulk up too, and attention is likely to turn to Imperial Brands, who look more and more like a minnow swimming in a tank of big, hungry fish.”
This multi-billion-dollar merger will have a ripple effect on other companies, including Phillip Morris and Japan Tobacco
Founded in 1902, BAT today sells over 200 brands across the globe. Included in its portfolio of internationally recognised and iconic labels are Dunhill, Vogue, Lucky Strike and Kent. It is also a market leader in what the company describes as ‘next generation products’ (NGPs). As the company said in its press release on the merger: “The transaction will benefit from the best of the two companies’ talented R&D and NGP organisations and allow NGP capabilities to be shared more broadly.” For BAT, it will also mean the acquisition of Reynolds’ Vuse, “one of the leading vapour brands sold in retail in the world’s largest vapour market”.
The deal will see BAT become the world’s largest listed tobacco company, putting it in an unrivalled position across the globe. The company proudly acknowledged this success on its Twitter page, stating: “We believe combination with Reynolds American will create a stronger, global tobacco and next-gen products business.”