A deal for British American Tobacco (BTI) to buy the rest of Reynolds American (NYSE:RAI) for $47 billion in cash and stock, has run into an unexpected problem, as reported by the website StreetInsider.com
It is not exactly clear which problem is complicating the deal. Owen Bennett, analyst at Jefferies & Co., said that the problem "is likely to do with how BAT is choosing to sweeten the deal" and he suspects that the "deal is being driven by access to Reynolds heat not burn technology," as reported by the website StreetInsider.com.
British American Tobacco already holds 42.2% of Reynolds American's shares outstanding and offered to buy the rest of the American tobacco producer based on a valuation of $56.50 per share, which represents a 19.8% premium to the closing share price of Reynolds American on Oct. 20, 2016.
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British American Tobacco said that the deal, once completed, will “create the world’s largest listed tobacco company by revenue and profit.”
On Jan. 6, Reynolds American closed at $55.36 per share, up 16 cents from the previous trading day. However, the stock lost 1.23% or 69 cents since the beginning of 2017 and lost 1.72% or 97 cents since the release of the news from StreetInsider.com.
The 52-week range is between $43.38 and $56.65 and the stock is less volatile than the stock market with a beta of 0.40. At the moment, the American tobacco manufacturer has a market capitalization of $78.93 billion, the 12 trailing months PE ratio is 14.94 and the 12 trailing months EPS is $3.71.
Over the last three years, the company increased both revenue and earnings by 29.6% and 89%. Revenue increased from $8.24 billion in 2013 to $10.68 billion in 2015. Earnings increased from $1.72 billion in 2013 to $3.25 billion in 2015. Over the last four quarters, revenue and earnings increased as well from Q4 2015 to Q3 2016, by 5.2% and 208.6%.
As of today, analysts recommend to buy shares of Reynolds American and the recommendation rating is 2.2, which ranges between a 1 (Strong Buy) and 5 (Sell).
The analysts average target price is $54.91, which ranges between a low of $49.00 and a high of $62.00. According to the last close price, Reynolds American is up 45 cents from the average target price, or 0.82%.
The company pays a quarterly dividend of 46 cents for an annual payment of $1.84 per share, and the dividend yield is 3.33%.
The company is trading at 3.69 times the book value and at 16.06 times the Ebitda, which is $5.61 billion.
As of the most recent quarter, the company had $1.96 billion in cash and $13.18 billion in total debt.
During the third quarter of 2016, Barrow, Hanley, Mewhinney & Strauss and Ken Fisher (Trades, Portfolio) reduced their positions by 17.56% and 1.66%, while Joel Greenblatt (Trades, Portfolio) increased his position by 496.50%.
On Jan. 6, British American Tobacco closed at $112.55 per share, down 31 cents from the previous trading day. A volume of 704,203 shares were traded yesterday on the NYSE, versus an average volume of 978,870 shares traded over the last 10 trading days and an average volume of 1.23 million of shares traded over the last three months.
British American Tobacco had approximately $2.39 billion in cash on hand and approximately $24.84 billion in total debt, as of the most recent quarter.
During the third quarter of 2016, John Rogers (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) reduced their positions by 25.94% and 3.78%, while Ken Fisher (Trades, Portfolio) increased his position by 55.62%.
Disclosure: I have no positions in any stock mentioned in this article.