Reynolds American has agreed to be fully acquired by British American Tobacco, the cigarette companies said on Tuesday, in a $49 billion deal that will create a global tobacco powerhouse.
The acquisition will bring brands like Camel, Lucky Strike, Newport, Kent and Pall Mall under the same umbrella and create the world's largest publicly traded tobacco company by sales.
British American Tobacco already owns a stake in Reynolds and had previously offered to pay $47 billion for the remaining 57.8% of the company. It has since sweetened its offer and will now shell out $49.4 billion to take full ownership.
Altogether, British American Tobacco will pay $59.64 a share for Reynolds, which represents a 26% premium over its closing price in October before any offer had been made. That includes $29.44 in cash and 0.526 of its ordinary shares
The acquisition comes as e-cigarettes and vaping are gaining traction among consumers and is expected to better position the company to compete for those dollars.
"This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products," said Susan Cameron, who recently stepped down as CEO of Reynolds American and now serves as executive chairman.
The deal is expected to create annual savings of $400 million in three years and give British American Tobacco a bigger foothold in the U.S., where Reynolds claims 34% of the cigarette market share. The combined company will also have a strong presence in South America, Africa, the Middle East and Asia, said British American Tobacco.
The takeover has been approved by the boards of both companies in addition to a transaction committee formed by Reynolds to negotiate with British American Tobacco. It is still subject to approval by shareholders and regulators and, in the event of a break-up, could trigger a $1 billion fee.
This is the latest shake-up in an industry undergoing increasing consolidation as the number of smokers in many areas of the world declines. In 2014, Reynolds agreed to scoop up Lorillard for $27.4 billion, which combined the second and third largest tobacco companies in the U.S.
On Tuesday morning, shares of Reynolds rose 4%, while British American Tobacco shares edged down about 1%.
