British American Tobacco’s (BAT’s) bid to get back into the US market with a $47 billion (£38 billion) dealis now at risk.
The firm has offered a deal worth $20 billion in cash and $27 billion in shares for the 58 per cent of RJ Reynolds in the US that it doesn’t already own.
Its bid was heralded by Brexit supporters as a vote of confidence from a big British firm that it was not worried by the decision to leave Europe, and that it still was pressing ahead with large overseas deals.
It would have been the largest takeover of an overseas firm by a company in Britain for nine years,when RBS made a $97 billion purchase of ABN Amro.
But ATO’s deal now seems to be at risk as the board at RJ Reynolds is asking for more cash.
Currently, no one involved in the negotiations is commenting on the deal. BAT has also not issued any statement to the stock market about the state of play.
However, it may be that the deal does still go ahead. According to reports, the two firms are still involved in discussions and may be able to find a solution.
BAT is understood to be willing to raise the offer currently on the table.
If it does manage to secure a deal, it will form the world’s biggest stock market-listed tobacco firm. It will mean that brands currently owned by BAT, which include Dunhill and Lucky Strike, will be added to the same portfolio as Newport and Camel, which are owned by Reynolds at the present time.
Up until now, it was expected that the deal that was on the table would be enough.
It was believed that five BAT directors on the board of Reynolds would have had an indication if other members were not happy with the offer. While the five members are not part of the discussions, because of potential conflict of interest, it was thought they would have insight into the thinking of Reynolds shareholders.
However, if BAT does manage to pull this deal off, it will re-enter the American market after 12 years away.
Citigroup has confirmed that Reynolds American has said ‘no’ to BAT’s current offer.
However, a spokesperson said: “We regard this as a formality,” adding: “Reynolds is seeking a higher price from BAT, having rejected the existing offer. This doesn’t surprise us – rather we think it is part of the well-established dance involved in takeovers.”