As reported by Bloomberg, British American Tobacco PLC (LSE:BATS, Financial) (BTI, Financial) sold the second-largest bond deal of 2017.
The company sold $17.25 billion worth of bonds in eight different series, of which the longest has a maturity of 30 years and bears an interest rate of 4.54%.
The proceeds will be used to fund the purchase of the remaining portion of Reynolds American Inc. (RAI, Financial) it does not own, which is valued at $55 billion.
With this merger, British American will not only become a stronger tobacco company, but also a leader in next-generation products such as e-cigarettes and other electronic non-nicotine delivery systems. This will also help the company offset the effects of a declining industry as an increasing number of people are becoming aware of the adverse consequences of smoking on their health.
Therefore, this merger will help British American more effectively pursue its strategy to sustain growth and deliver high returns to its shareholders.
The merger with Reynolds American will create substantial synergies. For example, the company will generate enough cash flow to guarantee the payment of at least 65% of its net profit in the form of dividends to shareholders.
The merger will also increase the company's financial profile and enhance its creditworthiness. The latter will also be achieved through a gradual reduction of its total financial leverage.
British American Tobacco is currently trading around $64.08 per share with a market capitalization of $146.53 billion.
The stock is tradeing with a price-book (P/B) ratio of 11.32, a price-sales (P/S) ratio of 7.02 and a price-earnings (P/E) ratio of 19.77. The forward P/E ratio is 18.38. The tobacco company currently distributes an annual dividend of $2.22 through quarterly payments of 55.5 cents, for a dividend yield of 3.39%.
Reynolds American is currently trading around $65.40 per share with a market capitalization of $93.27 billion.
Reynolds American has a P/B ratio of 4.30, a P/S ratio of 7.46 and a P/E ratio of 28.31. The forward P/E ratio is 24.94.
Disclosure: I have no positions in any stocks mentioned in this article.
