15th Jul 2014 12:01
LONDON (Alliance News) - British American Tobacco PLC Tuesday said it will invest USD4.7 billion to maintain its existing 42% interest in the enlarged Reynolds American Inc group, following the acquisition of Lorillard Inc by Reynolds in a deal valued at USD27.4 billion.
In a separate statement statement Tuesday, London-based Imperial Tobacco Group PLC said it has entered into a purchase agreement with Reynolds American to acquire a portfolio of US cigarette brands, office and productions facilities currently owned by Lorillard.
Last week, Reynolds said it was nearing a deal to acquire smaller rival Lorillard with the approval of British American Tobacco PLC, which owns 42% of Reynolds.
British American said in a statement last Friday that, were such a deal to proceed, it would support the transaction by subscribing for additional shares in Reynolds with the aim of maintaining its existing 42% interest.
On Tuesday US tobacco giant Reynolds American said it has agreed to acquire Lorillard in a cash-and-stock transaction currently valued at USD68.88 per Lorillard share, or a total of USD27.4 billion, including the assumption of net debt.
The deal combines Reynolds cigarette brands, such as Camel and Pall Mall, with Lorillard's top-selling Newport menthol cigarettes. It also enables Reynolds to gain a commanding position in the fast-growing market for electronic cigarettes, which represent a growing alternative to traditional cigarettes. Lorillard acquired SKYCIG, a British electronic cigarette business, in October 2013.
In a statement Tuesday, British American Tobacco said it has agreed to invest USD4.7 billion as part of Reynolds American's acquisition of Lorillard, enabling British American Tobacco to maintain its 42% shareholding in the enlarged business.
British American Tobacco said it will be subscribing for new shares in Reynolds American, with funding from its existing resources and debt.
It also said it will be suspending its GBP1.5 billion share buyback programme, with effect from July 30.
British American Tobacco said its investment is contingent upon the completion of Reynolds American's acquisition of Lorillard. It said that the transaction is expected to be completed in the first half of 2015, and is expected to be "mildly accretive" for the company.
The acquisition of Lorillard by Reynolds American is subject to a number of regulatory approvals in the US and the other parties' shareholder approvals. However British American Tobacco said it already has voted in favour.
"We believe this is a good investment for our shareholders. We fully support the proposed deal which maintains our position in what will be a larger, more competitive business," said British American Tobacco Chief Executive Officer Nicandro Durante in a statement.
Imperial Tobacco said Tuesday that it will buy some brands from Reynolds and Lorillard, including a portfolio of US cigarette brands - Winston, Maverick, Kool, Salem - and US and international e-cigarette brand blu. It is also buying the national sales force, offices and production facilities currently owned by Lorillard, all for a total consideration of USD7.1 billion in cash.
Those brands in 2013 generated net revenue of USD2.4 billion, EBITDA of USD0.8 billion and operating profit of USD0.6 billion.
Imperial Tobacco said the acquisition will "transform its US business" and has huge growth potential.
"We plan to build a US brand portfolio through national distribution and create a stronger, more competitive business. We intend to internationalise blu...and enhance its growth opportunity with our know-how. We expect opportunities for cost optimisation through integration," said Imperial Tobacco Chief Executive Alison Cooper in a statement.
Cooper said the acquisition of the assets is expected to be significantly earnings enhancing in the first full year post completion.
"The value this will create for shareholders, and the strategic transformation of our position in a key growth market, makes this an outstanding opportunity," Cooper added.
Again, Imperial Tobacco said the closing of the acquisition of the assets is conditioned upon, among other things, Reynolds American's completion of the acquisition of Lorillard, which requires US anti-trust approval.
Imperial Tobacco shares were off 0.4% at 2,727.00 pence after the announcement Tuesday afternoon, while British American Tobacco shares were down 0.9% at 3,564.00 pence.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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