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WINSTON-SALEM, N.C. — Reynolds American Inc. (RAI) has rejected a $47-billion acquisition offer from British American Tobacco plc (BAT), reported Bloomberg. The company deemed the offer amount too low, according to sources familiar with the potential deal.
BAT, which already owns 42.2 percent of RAI, is reportedly willing to offer a slightly higher price than its unsolicited cash-and-stock offer of $56.50 a share. Both companies declined to comment on the matter.
London-based BAT announced its non-binding merger proposal on Oct. 21, as CSNews Online previously reported. If it successfully made the acquisition, BAT would leapfrog over Philip Morris International Inc. to become the world's largest publicly traded tobacco company.
The initial rejection of BAT's offer is unsurprising, according to Vivien Azer, director and senior research analyst at Cowen and Co. She noted that the offer came after RAI pulled back 12 percent from its all-time high in early July and that it did not give RAI shareholders credit for total cost synergies from the company's acquisition of Lorillard.
"As such, we believe there is room for BAT to increase its original offer price and are hopeful the two parties are able to come to a mutual agreement of a higher price," Azer said.
Winston-Salem-based RAI became the No. 2 tobacco company in the United States less than a year and half ago when it closed on its acquisition of Lorillard, maker of the Newport brand. The three-way deal included Imperial Brands, then known as Imperial Tobacco Group, buying several brands from the two tobacco companies, making Imperial and its ITG Brands LLC the No. 3 player in the U.S. tobacco space.
RAI is the parent company of R.J. Reynolds Tobacco Co., Santa Fe Natural Tobacco Co. Inc., American Snuff Co. LLC, Niconovum USA Inc., Niconovum AB and R.J. Reynolds Vapor Co.