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BAT’s $49bn Reynolds takeover is on – with big reduced-risk potential

British American Tobacco (BAT) is to take over its US competitor Reynolds American, with the $49.4bn deal expected to go through next week.

Both Reynolds and BAT shareholders voted yesterday in favour of the takeover by the British tobacco giant. The deal is expected to become effective from 25th July.

The board of Reynolds accepted an offer in January for the approximately 58% of the company which BAT does not already own. It has held a stake in Reynolds since 2004. The deal has now been approved by shareholders in both Britain and the US representing about 80% of the stock.

After the deal approval at BAT’s general meeting, chief executive Nicandro Durante said: “We look forward to welcoming Reynolds group employees to British Awith big potential consequences for US reduced risk sectormerican Tobacco and to realising the benefits of operating these two great companies as one stronger, global tobacco and next generation products business with direct access for our products across the most attractive markets in the world.”

The acquisition will make BAT the world’s largest publicly traded tobacco company by level of sales.

Some media report that the company expects to make $400m cost savings by July 2020, including the elimination of duplicate corporate function and manufacturing efficiency.

Reynolds, which grew dramatically in 2015 with its own acquisition of Lorillard, announced in May its proposed leadership team after the possible acquisition of the company by BAT, with Debra A. Crew remaining as president and CEO.

 

Opportunity for the e-cig sector

 

As ECigIntelligence reported in January 2017, both companies described this takeover deal as a market opportunity.

BAT’s Glo heat-not-burn (HnB) product might make it to the US sooner rather than later as a result of the deal, compensating for Reynolds’s lack of success with the new technology.

For BAT, next generation products (NGP) are a top priority. In a trading update published by the company on 14th June, BAT forecast profit growth for the second half of 2017 due to HnB investment and marketing.

The performance of Glo in Sendai (Japan), where it was given a trial launch in December last year, has so far exceeded company expectations.

 

What This Means: The takeover of Reynolds American by BAT may have an impact on the reduced-risk sector sooner rather than later.

The American market will become BAT’s largest market in the world, and potentially first among the 40 markets where it expects to be present with smoke-free products by 2018. Perhaps most notably, Glo could be launched across the Atlantic. How other products, such as BAT’s Vype and Reynolds’s Vuse, will co-exist in global markets remains to be seen.

The deal has also heightened speculation that Altria, which along with the combined BAT Reynolds will now dominate the US cigarette market, will reunite with Philip Morris International (PMI).

– David Palacios ECigIntelligence staff

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