US. British American Tobacco (BAT) is to merge its US tobacco business Brown & Williamson (B&W) with RJ Reynolds, the companies announced yesterday. The new public holding company will be known as Reynolds American and will be the second largest tobacco supplier in the US market behind Philip Morris. BAT and the shareholders of RJ Reynolds will receive 42% and 58% respectively in the new group.
BAT said the move is expected to generate a yearly saving of US$500 million through synergies, although the merger may be hampered by monopoly concerns. Other factors driving the merger were the desire to compete more effectively in the challenging US operating environment, with the combined product portfolio representing 30% of the US market and over US$10 billion in sales.
The deal also includes the transference of B&€™s Master Settlement Agreement liabilities to Reynolds American. B&W is to be indemnified for all existing and future litigation relating to its US business.
RJ Reynolds chairman and ceo Andrew Schindler commented: “This agreement marks a milestone for both companies. Their combination will enable us to achieve tremendous efficiencies, and will greatly enhance our ability to compete effectively in the US market.”
BAT chairman Martin Broughton commented: “This merger will improve our competitive position in the most important cigarette market in the world. We believe that the merger is the best way to achieve our long-term strategic ambitions in the US market, while improving both our earnings per share and our cash flow in the first full year following completion.”
The combined portfolio of the two companies will include Camel, Doral, GPC, Kool, Misty, Pall Mall, Salem and Winston.
It is planned that the new headquarters will be in Winston-Salem, North Carolina, headed by chairman Andrew Schindler (the current RJ Reynolds chairman and ceo) and ceo Susan Ivey (current B&W ceo).
