Will BAT and Reynolds create a tobacco supergiant?
In a deal worth £38 billion ($47 billion), British American Tobacco is planning to merge with Reynolds American Tobacco, combining the biggest names in the industry including Camel, Dunhill, and Lucky Strike.
BAT has been a shareholder of Reynolds for 12 years, and now it is offering $20 billion in cash and $27 billion in shares for the American company. The merger still needs to be approved by all company directors at Reynolds.
Nigel Driffield of Warwick Business School is a Professor of International Business and is a researcher of the tobacco industry. He said of the news: "The planned takeover of Reynolds by BAT represents the final step of a process that the two companies embarked on some time ago. The markets in which these firms are the dominant players are declining, and they face ever increasing competition from Asia in seeking to develop new markets. This merger will therefore lead to further rationalisation of both RJR and BAT, and give complete access to RJR's US production facilities for BAT.
"This is likely to lead to increased production of BAT’s UK brands in the US, with fewer exports to the US from the UK. Demand in the US and UK markets has been declining for some time, with increased use of substitute products including e-cigarettes.
"For some time now US and UK tobacco firms have come under pressure at home from health groups as they seek new markets, and they face increased market penetration from Asian and European firms who receive less adverse comment at home for seeking to expand into developing countries. This merger is therefore the next stage in moves to reduce the cost base in the UK and US."
Clik here for more on Professor Driffield's research on the tobacco industry.