Wrap Text
BAT proposes merger with Reynolds
British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")
This announcement contains inside information
For immediate release: 21 October 2016
BAT proposes merger with Reynolds
British American Tobacco p.l.c. (“BAT”), which owns 42.2% of Reynolds American Inc. (“Reynolds”), has
made a proposal to merge with Reynolds through the acquisition of the remaining 57.8% in the company.
US securities laws require BAT to announce its merger proposal promptly after it was made to the Board of
Reynolds. As a result, BAT has been unable to have prior negotiations with Reynolds regarding the
proposal.
BAT’s proposal to merge with Reynolds:
- Values Reynolds at $56.50 per share, of which $24.13 would be in cash and $32.37 would be in BAT shares.[1]
- Represents a premium of 20% over the closing price of Reynolds common stock on 20 October 2016.
This would create a stronger, truly global tobacco and Next Generation Products (“NGP”) company with:
- A leading position in the US tobacco market, the largest global profit pool (ex-China) with strong growth
dynamics.
- A significant presence in high growth emerging markets across South America, Africa, the Middle East and
Asia, together with the most attractive developed markets.
- A unique portfolio of strong brands, bringing together ownership of Newport, Kent and Pall Mall.
- Combined Next Generation Products and R&D capabilities to deliver a world class pipeline of vapour and
tobacco heating products across all the fastest growing NGP markets globally.
- Creating the world’s largest listed tobacco company by net turnover and operating profit.
There is a strong financial rationale for the transaction that supports long-term delivery for all stakeholders:
- This is a premium offer, supported by modest cost synergies, with a significant share consideration enabling
participation in the long-term benefits.
- It is earnings accretive in the first full year.
- It is expected to be accretive to dividends per share.
- The transaction would create a broader, larger business, delivering more diversified sources of profit growth.
- The combined company would maintain a strong financial profile, with a target of maintaining a solid
investment grade credit rating and enhanced cash generation.
Key terms of proposed transaction
The proposed transaction would be effected through a US statutory merger in which Reynolds shareholders, other
than BAT, would receive $24.13 in cash and 0.5502 BAT shares for each of their Reynolds shares.
The total consideration for the remaining 57.8% of Reynolds would be $47 billion, of which approximately $20
billion would be in cash and $27 billion in BAT shares.
The Proposal represents a premium of 20% over the closing price of Reynolds common stock on 20 October 2016
and an Enterprise Value of $93 billion which, based on reported LTM EBITDA to 30 September 2016 represents a
multiple of 16.3x.
The proposed merger is subject to endorsement of Reynolds’s independent directors (not designated by BAT) and
approval by BAT and Reynolds shareholders.
BAT’s Chief Executive, Nicandro Durante commented:
“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US
market. The acquisition of Lorillard in 2015 has further strengthened Reynolds’s business. The proposed merger of
our two great companies is the logical progression in our relationship and offers all shareholders a stake in a
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stronger, truly global tobacco and Next Generation Products company. BAT is proud of its track record of consistent
delivery for shareholders and this transaction would further strengthen that delivery in the future."
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1 Based on reference share prices and exchange rates as at market close on 20 October 2016 as quoted by Bloomberg.
Additional information
The BAT Board is committed to maintaining a solid investment grade credit rating. The cash component of the
merger would be financed by a combination of existing cash resources, new bank credit lines and the issuance of
new bonds.
The combined Group would be the world’s largest listed tobacco and Next Generation Products business by net
turnover and operating profit with exposure to both cash generative developed and high growth developing
markets, giving a unique capacity to exploit industry opportunities as they develop.
The cost synergies associated with the proposed merger are estimated by BAT to be relatively modest at around
$400 million, however this would need to be verified following engagement with Reynolds.
Under the long-standing Governance Agreement between Reynolds and BAT, the proposed merger must be
approved by the independent directors of Reynolds not designated by BAT (the “Other Directors”). BAT will not
pursue its proposal without this endorsement. The proposal is also subject to the completion of limited confirmatory
due diligence and the negotiation and execution of definitive transaction documents mutually acceptable to and
approved by the Boards of BAT and Reynolds. The consummation of any merger would further be subject to
regulatory approvals and shareholder approvals, including the approval by a majority of the votes cast on the
proposed merger by holders of the Reynolds shares not owned by BAT or its subsidiaries and approval by BAT’s
shareholders, and other customary conditions. The proposed merger would not be subject to any financing
conditions.
BAT’s existing manufacturing footprint would be enhanced by the inclusion of Reynolds’s high quality production
facility in Tobaccoville, North Carolina.
There can be no assurance that BAT’s proposal or any transaction with BAT will be acceptable to the Other
Directors or Reynolds’s Board, or that if such proposed transaction is acceptable, that the conditions to a proposed
transaction would be satisfied or that a transaction will be consummated.
The Board of BAT intends to register BAT under the US securities laws in connection with the proposed
transaction. As part of the SEC registration process, BAT and its auditors will need to satisfy the SEC that they are
complying with the applicable US auditing requirements which differ in some respects from those in the UK.
As BAT is a significant existing shareholder of Reynolds, US securities laws require BAT to announce publicly its
merger proposal to Reynolds by promptly filing an amendment to BAT’s Schedule 13-D.
To view the letter BAT sent to the Board of Reynolds on 20 October 2016 detailing the merger proposal, please
paste the following URL into the address bar of your browser.
http://www.rns-pdf.londonstockexchange.com/rns/1162N_-2016-10-20.pdf
Further announcements will be made if and when appropriate.
ENQUIRIES
BAT Press Office BAT Investor Relations
+44 (0)207 845 2888 (24 hours) Mike Nightingale / Rachael Brierley / Sabina Marshman
+44 (0)207 845 1180 / 1519 / 1781
FTI Consulting (UK PR agency) Sard Verbinnen & Co. (US PR agency)
John Waples +44 (0)20 3727 1515 US: George Sard / Jim Barron +1 212 687 8080
Edward Bridges +44 (0)20 3727 1067 UK: Michael Henson +44 (0)20 3178 8914
David Waller +44 (0)20 3727 1651
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Centerview Partners Deutsche Bank
UK: Nick Reid / Hadleigh Beals UK: Nigel Meek / James Ibbotson
+44 (0)207 409 9700 Matt Hall / Jimmy Bastock (Corporate Broking)
+44 (0)207 545 8000
US: Blair Effron
+1 212 380 2650 US: James Stynes
+1 212 250 2500
UBS
John Woolland / James Robertson
David Roberts (corporate broking)
+44 (0)207 568 1000
NOTES TO EDITORS
BAT is a global tobacco group with brands sold in more than 200 markets. It employs more than 50,000 people worldwide and
has over 200 brands in its portfolio, with its cigarettes chosen by around one in eight of the world’s one billion smokers. BAT has
market leading positions in at least 55 markets around the world. The Group generated £5 billion adjusted profit from operations
in 2015.
Centerview, Deutsche Bank and UBS are acting as financial advisers to BAT. Deutsche Bank and UBS are Joint Corporate
Brokers to BAT and acting as Joint Sponsors to BAT in relation to this transaction. Cravath, Swaine & Moore LLP and Herbert
Smith Freehills LLP are acting for BAT as US and UK legal counsel respectively. PwC are acting as accountants and advisors to
BAT on this transaction.
Centerview Partners UK LLP (“Centerview Partners”) is authorised and regulated by the Financial Conduct Authority.
Centerview Partners is acting exclusively for BAT in connection with the potential acquisition. Centerview Partners is not, and will
not be, responsible to anyone other than BAT for providing the protections afforded to its clients or for providing advice in relation
to the potential merger or any other matters referred to in this announcement. Apart from the responsibilities and liabilities, if any,
which may be imposed on it by the Financial Services and Markets Act 2000, Centerview accepts no responsibility whatsoever
and makes no representation or warranty, express or implied, as to the contents of this announcement, including its accuracy,
fairness, sufficiency, completeness or verification or for any other statement made or purported to be made by it, or on their behalf,
in connection with BAT or the potential acquisition, and nothing in this announcement is, or shall be relied upon as, a promise or
representation in this respect, whether as to the past or the future. Centerview Partners accordingly disclaims to the fullest extent
permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to above)
which it might otherwise have in respect of this announcement.
Deutsche Bank AG is authorised under German Banking Law (competent authority: European Central Bank) and, in the United
Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and by BaFin,
Germany’s Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the Prudential
Regulation Authority and Financial Conduct Authority. Details about the extent of its authorisation and regulation by the Prudential
Regulation Authority, and regulation by the Financial Conduct Authority, are available on request or from
www.db.com/en/content/eu_disclosures.htm.
Deutsche Bank AG, acting through its London branch (“DB London”), and Deutsche Bank Securities Inc. (“DBSI” and with DB
London, “DB”) are acting as joint financial adviser and DB London is acting as joint corporate broker to BAT and no other person
in connection with this announcement or its contents. DB will not be responsible to any person other than BAT for providing any of
the protections afforded to clients of DB, nor for providing any advice in relation to any matter referred to herein.
UBS Limited, which is authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation
Authority in the United Kingdom, is acting exclusively for BAT and no one else in connection with the matters referred to in this
Announcement. In connection with such matters, UBS Limited, its affiliates, and its or their respective directors, officers,
employees and agents will not regard any other person as their client, nor will they be responsible to any other person for
providing the protections afforded to their clients or for providing advice in relation to the contents of this Announcement or any
other matter referred to herein.
The person responsible for making this announcement is Nicola Snook, BAT’s Company Secretary.
For further information
www.bat.com
Forward looking statements
Certain statements in this communication regarding the transaction proposed by BAT, the benefits and synergies of the
transaction, future opportunities for the combined company and products and any other statements regarding BAT’s future
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expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical
facts are “forward-looking” statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. These
statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “could,” “may,”
“would,” “should,” “intend,” “plan,” “potential,” “predict(s),” “will,” “expect(s),” “estimate(s),” “project(s),” “positioned,” “strategy,”
“outlook” and similar expressions. All such forward-looking statements involve estimates and assumptions that are subject to
risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the
statements. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking
statements are the following: uncertainties as to whether an agreement in respect of the proposed transaction will be negotiated
and executed; uncertainties as to whether Reynolds will cooperate with BAT regarding the proposed transaction and whether
Reynolds’s Other Directors will endorse any transaction proposed by BAT; uncertainties as to whether the other conditions to the
proposed transaction will be satisfied or satisfied on the anticipated schedule; the timing of the proposed transaction and whether
the proposed transaction will be completed; failure to realize contemplated synergies and other benefits from the proposed
transaction; incurrence of significant costs in connection with the proposed transactions; the effect of the announcement of the
proposed transaction on the ability of Reynolds and BAT to retain customers, retain and hire key personnel, maintain relationships
with suppliers and on their operating results and businesses generally; uncertainties as to the ability to maintain credit ratings;
changes in general economic conditions, the tobacco industry, stock market trading conditions, foreign exchange rates, tax law
requirements or government regulation; the impact of adverse governmental developments with respect to menthol in cigarettes;
ability to develop, produce or market new alternative products profitably; ability to effectively implement strategic initiatives and
actions taken to increase sales growth; uncertainties relating to the ability to enhance cash generation and pay dividends; adverse
litigation and dispute outcomes; and changes in the market position, businesses, financial condition, results of operations or
prospects of BAT and Reynolds. Additional information concerning these and other factors can be found in Reynolds’s filings with
the U.S. Securities and Exchange Commission (“SEC”), including Reynolds’s most recent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and BAT’s Annual Reports, which may be obtained free of
charge from BAT’s website www.BAT.com. Readers are cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date hereof and BAT undertakes no obligation to update or revise publicly any forward-
looking statements, whether as a result of new information, future events or otherwise.
Additional information and where to find it
An agreement in respect of the proposed transaction described in this release has not yet been executed, and this release is
neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC should the
proposed transaction go forward. Any solicitation will only be made through materials filed with the SEC. Nonetheless, this
communication may be deemed to be solicitation material in respect of the transaction proposed by BAT.
Should the proposed transaction go forward, BAT expects to file relevant materials with the SEC, including a registration
statement on Form F-4 that may include a proxy statement of Reynolds that also constitutes a prospectus of BAT. Investors and
security holders are urged to read all relevant documents filed with the SEC (if and when they become available), including the
proxy statement/prospectus, because they will contain important information about the proposed transaction. Investors and
security holders will be able to obtain the documents (if and when available) free of charge at the SEC’s website,
http://www.sec.gov, or for free from BAT by using the contact details above. Such documents are not currently available.
Participants in solicitation
This release is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the
SEC should the proposed transaction go forward. Nonetheless, BAT and its affiliates and their directors and executive officers
and certain employees may be deemed to be participants in the solicitation of proxies from the holders of Reynolds common stock
with respect to the proposed transaction. Information about such parties and a description of their interests is set forth in BAT’s
2015 Annual Report, which may be obtained free of charge from BAT’s website www.bat.com and the proxy statement for
Reynolds’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 23, 2016. To the extent holdings of
Reynolds securities have changed since the amounts contained in the proxy statement for Reynolds’s 2016 Annual Meeting of
Stockholders, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC.
Additional information regarding the interest of such participants will also be included in the materials that BAT expects to file with
the SEC should the proposed transaction go forward. These documents (if and when available) may be obtained free of charge
from the SEC’s website http://www.sec.gov, or from BAT using the contact information above.
Non-solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except
by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Sponsor: UBS South Africa (Pty) Ltd
21 October 2016
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