British American Tobacco has agreed a $49.4 billion takeover of U.S. rival Reynolds American, creating the world's biggest listed tobacco company after it increased an earlier offer by more than $2 billion.
BAT, which already owned 42 percent of Reynolds, will pay $29.44 in cash and 0.5260 BAT shares for each Reynolds share, it said, a 26 percent premium over the price of the stock on Oct. 20, the day before BAT's first offer was made public.
Reynolds, the maker of Camel and Newport cigarettes, rejected an initial approach in November, although the two sides remained in talks.
The deal, which values the whole of Reynolds at around $86 billion, will mark the return of BAT to the lucrative and highly regulated U.S. market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.
BAT Chief Executive Nicandro Durante said bringing the two companies together would create a market leader with brands including Newport, Lucky Strike, Camel and Pall Mall.
"It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world," he said on Tuesday.
The U.S. tobacco market was the most profitable outside China, he said in an interview, and BAT "figured there was some room to grow there."
"We expect the great majority of Reynolds jobs to stay in tack," said Susan M. Cameron, executive chairman of Reynolds American's board of directors.
She said while some jobs would be eliminated because Reynolds is going from a publicly traded company to a subsidiary, there might be job creation in the United States. President-elect Donald Trump has repeatedly singled out and criticized U.S. companies for not doing more to keep jobs in the United States.
BAT left the United States in 2004 when it merged its subsidiary Brown & Williamson with R.J. Reynolds to form Reynolds American. A decade later, the U.S. group agreed to buy Lorillard in a $27.4 billion deal that added the Newport brand to its stable.
"I thought this was always going to happen, but the acquisition of Newport completed the picture for Reynolds," said Shane MacGuill, Head of Tobacco at Euromonitor International. "It rounded out their program, gave them a strong brand with growth potential."
Reynolds got Newport menthol cigarettes, one of the few U.S. brands that is gaining share in a shrinking market, as part of its deal with Lorillard.
Durante said there was a clear rationale to bring the groups together, and an alignment in their relative trading multiples made an agreement possible.
"This is the right moment to make the deal; the multiples of BAT and Reynolds are closer than ever before," he said.
BAT would also be able to take Reynold's NGP portfolio, led by vaping brand Vuse, into its international markets, he said.
Debra A. Crew, Reynolds American's president and chief executive officer, said while the next generation products are currently only a small part of its business, they have enormous long-term potential. "More than half of smokers are interested in alternative products," she said. "The interest is there."