BAT agrees Reynolds deal to create largest listed tobacco giant

British American Tobacco (Kuala Lumpur: 4162.KL - news) has reached a deal to pay $49.4bn (£41bn) for the shares it does not already own in US rival Reynolds.

The FTSE 100 firm, which makes Rothmans, Lucky Strike and Dunhill, said the takeover would give it greater access to emerging markets and the US while also boosting its presence in the growing e-cigarette sector.

It had announced a $47bn cash and shares offer back in October for Reynolds - the second biggest player in the US with the Pall Mall and Camel brands in its stable - but that approach was rejected.

BAT said the improved offer meant that Reynolds' shareholders would net $59.64 per share - $29.44 in cash and 0.5260 BAT ordinary shares - with the price representing a premium of 26% for investors.

It already has a 42.2% stake in the US business having become a shareholder 13 years ago.

BAT confirmed it was looking to finance the cash element of the purchase through a combination of "existing cash resources, new bank credit lines and the issuance of new bonds."

It included, the company said, a $25bn "acquisition facility" with a syndicate of banks.

The credit agency Moody's had warned in October it was putting the company's rating under review as it assessed the financing plans. BAT said on Tuesday it was committed to maintaining "a solid investment grade credit rating" and announced plans to limit debt on its balance sheet over three years.

It said it expected the deal to deliver $400m of annual savings by the end of 2019 - with lower corporate costs contributing. That is usually a sign that job losses are on the way.

BAT shares closed 4% lower.

Its chief executive, Nicandro Durante, said of the deal: "We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team's strategy, including its acquisition of Lorillard, which we supported with our own investment in 2015."

He added: "It will create a stronger, global tobacco and NGP (next generations products) business with direct access for our products across the most attractive markets in the world.

"We believe this will drive continued, sustainable profit growth and returns for shareholders long into the future."

Shane MacGuill, head of tobacco at consultancy Euromonitor International, said the takeover was motivated by the lucrative US market.

"BAT and Reynolds American (NYSE: RAI - news) have a strong existing relationship and while cost savings will be relatively modest the full access this acquisition would give BAT to the US - a lucrative, consolidated market with high barriers to entry - meaning it makes eminent sense."