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Business

BAT bids to be world's biggest tobacco group

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Business

BAT bids to be world's biggest tobacco group

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COMING UP:BAT bids to be world's biggest tobacco group

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00:00:00
>> Pulling rank in big tobacco. The maker of Lucky Strikes cigarettes, British American Tobacco, offering $47 billion to buy its U.S. rival, Reynolds American. The deal would combine a raft of brands, including Newport, Kent, Camel, and Pal Mal, making the world's biggest listed tobacco company. And, allowing it to diversify, as smoking rates in the US and the west continue to decline.
00:00:24
In London, Reuters Senior Correspondent, Paul Sandle.>> It gives the British company, London listed company, a stronger position in next generation tobacco, which is basically vaping, ecigarettes, these types of products which are growing quickly. And it also gives them access to the highly profitable US market, and it gives them new brands, such as, Newports, Camel, cigarettes which they can sell into emerging markets where demand for Western cigarettes is still growing, such as Russia, Ukraine, Turkey, South America, Asia.
00:00:59
>> BAT already has a 42% stake in the American group. Internationally companies have traditionally steered clear of the US tobacco market. That, because of possible law suits from people made ill by smoking. But analysts say that risk has eased, making it a good time for BAT to buy the rest of Reynolds that it doesn't already own.
00:01:19
>> The risks are that it's paying too much. Some analysts have said it's quite a pricey deal, but tobacco markets, the tobacco industry remains very profitable. It's dominated by a small group of players, so the capacity of risk is diminished. And it's still a very good business, aside from, obviously, the health issues.
00:01:43
>> Friday's offer of cash and shares, values Reynolds shares at $56.50, that's a 20% premium over its closing price on Thursday. Shares in BAT have soared since Britain's vote to leave the EU, investors betting the pound's fall will boost the profit of companies that make most of their money outside the UK.