British American Buys Reynolds American for $47 Billion

The deal will create the largest publicly traded tobacco manufacturer

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British American Tobacco PLC (BTI, Financial) agreed to buy the rest of Reynolds American (RAI, Financial) that it didn’t own yet Tuesday for a total consideration of $49.4 billion as reported by Reuters. From this transaction, the largest publicly traded tobacco manufacturer will be formed.

British American Tobacco already held 42.2% of Reynolds American's shares outstanding.

The completion of the deal has been possible thanks to the sweetening of the initial offer of $47 billion by British American Tobacco of $2 billion.

The British global tobacco manufacturer, headquartered in London, will buy each share of Reynolds with cash for $29.44 and 0.5260 of its own shares. The total value of one Reynolds share represents a 26% premium to the closing share price of Reynolds American on Oct. 20, 2016, the prior day that the first offer of British global tobacco was disclosed to the public and declined the following month because it evidently was judged insufficient, according to Reuters.

British American Tobacco closed at $115.21 per share, up 30 cents or 0.26% from the previous trading day, with a volume of 1,489,024 shares traded on the New York Stock Exchange (NYSE) versus an average volume of 1.31 million shares traded over the last three months. The stock gained 2% or $2.30 since the beginning of the year.

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The 52-week range is between $99.81 and $131.34, and the stock is more volatile than the stock market with a beta of 1.10. At the moment, the British tobacco manufacturer has a market capitalization of $110.59 billion, the 12 trailing months price-earnings (P/E) ratio is 19.97, and the 12 trailing months EPS is $5.77.

Analysts recommend buying shares of British American Tobacco, and the recommendation rating is 2. The recommendation ranges between a 1 (Strong Buy) and 5 (Sell).

The analysts' average target price is $140.50, which ranges between a low of $139 and a high of $142.

The company is trading at 14.07 times the book value and at 20.17 times the EBITDA, which is $6.41 billion.

The company had $2.36 billion in cash and $24.61 billion in total debt in the most recent quarter.

Reynolds American closed at $55.97 per share, up 23 cents or 0.41% from the previous trading day, with a volume of 3,405,641 shares were traded  on the NYSE, versus an average volume of 8,022,406 shares traded over the last three months.

Reynolds American had approximately $1.96 billion in cash on hand and approximately $13.18 billion in total debt as of the most recent quarter.

The American tobacco producer has a recommendation rating of 2.2, and the analysts’ average target price is $54.91, 1.9% lower than the current price.

Disclosure: I have no positions in any stock mentioned in this article.

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