Tobacco Company Sold as British American Tobacco Buys Reynolds American

It marks the return of United Kingdom based BAT to the lucrative and highly regulated USA market after a 12-year absence.

Credit rating agency Moody’s Investors Service on Tuesday said it is downgrading the long term rating of British American Tobacco PLC, due to the leverage it will take on for its acquisition of competitor Reynolds American Inc. Americafirst Capital Management LLC bought a new position in shares of Reynolds American during the second quarter worth approximately $109,000.

Anti-smoking campaigns, like the very effective Truth campaign – which includes the non-profit’s latest #Squadless campaign to stop teen smoking – are not as prevalent in developing countries around the globe, and so the merger will mean that the company is looking to market its products overseas. BAT projects $400 million in annualized “cost synergies” by the end of the third year – presumably including savings in marketing expenditures. It spent about US$2.4 billion on a buyout of its Brazilian Souza Cruz unit past year, and it previously part-funded Reynolds’ takeover of Lorillard – a move that let BAT maintain its 42 per cent stake in the maker of the Camel brand. (NYSE:RAI), according to U.S. Securities and Exchange Commission (SEC) filings.

The two companies already have a technology-sharing agreement in the development of electronic cigarettes.

BAT would also be able to take Reynold’s NGP portfolio, led by vaping brand Vuse, into its worldwide markets, he said.

Established in 1902, BAT on Tuesday became the largest listed tobacco firm in the world.

Tyler Tubbs, an analyst with Olivetree Financial Ltd. of London, said Reynolds’ board and its non-BAT-affiliated shareholders had leverage in the deal since “BAT needs a majority of the minority of Reynolds shareholders to get this deal done”. BAT has been pouring money into alternative products in recent years, launching new heat-not-burn products in addition to its existing e-cigarettes such as Vype.

Reynolds’ primary interest in Lorillard was to acquire its Newport menthol brand, one of the nation’s top cigarette brands. “They already had billions tied up in Reynolds, now they will have billions more, but with full control of the company and its cash flows”.

However, Growe said the BAT-Reynolds deal fails to change his opinion that the two Philip Morris companies will not recombine.

Denise Roland and Ben Dummett contributed to this article.