British American Tobacco has agreed a $49.4 billion takeover of U.S. rival Reynolds American Inc, creating the world's biggest listed tobacco company after it nudged up an earlier offer by more than $2 billion. Ivor Bennett reports
Big tobacco is living up to its name. British American and Reynolds American joining forces to create the world's biggest listed tobacco company. It was a slow burner at first. Reynold's rejected an initial bid in October. But BAT's latest offer is more than 2 billion dollars more, agreeing a final price of 49.4 billion dollars. SOUNDBITE (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: "it is a position that BAT can argue is ultimately supportive of shareholder value for both the shareholders coming in and BAT's existing shareholders. And that relates to a substantially enhanced position in the global tobacco business." For BAT, it means a return to the lucrative American market. Where Reynolds has a much firmer foothold with brands like Newport and Camel. And that's not all. SOUNDBITE (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: "It also means BAT gets its hands on some of the technology that Reynolds has in terms of heating and not burning tobacco, which is an important part of the future industrial logic." By heating tobacco, consumers inhale vapor rather than smoke. An increasingly popular and thought to be healthier alternative. But that's not to say established markets are running out of puff. SOUNDBITE (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: "I think it's surprisingly easy for tobacco companies to generate sales so long as they understand what the customers are looking for." But as customer habits change, companies do too. This merger thought to be the touchpaper for further consolidation.