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On the 20th of October, BAT, who is the second-largest tobacco manufacturer in the United States, sent an acquisition proposal to RAI. This comprised of an offer of $20 billion in cash and about $47 billion in shares of the BAT company to Reynolds American, for the acquisition of the remaining 57.8% in the company.

In a move that could push the price up, Reynolds refused this initial offer, however Bloomberg disclosed that BAT, which already owns 42% of the company, is willing to marginally increase the price.

Why is this deal significant?

Philip Morris International (PMI) is currently the world’s largest tobacco company, with BAT being a close second. This deal would not only secure BAT the leading position, but increase its market share in the US, and reinforce its presence in Asia, Middle East, South America and Africa,which are high growth emerging markets offering, according to BAT “a unique portfolio of strong brands”.

This deal would secure BAT the leading position, increase its market share in the US, and reinforce its presence in Asia, Middle East, South America and Africa,
The merge would also provide the Company with access to  “combined Next Generation Products and R&D capabilities to deliver a world class pipeline of vapour and tobacco heating products across all the fastest growing NGP markets globally.”

“We are not surprised to see that RAI has rejected the offer, as we had been calling for a sweetened deal,” said analysts from Cowen Group in New York. “We are encouraged that at least according to press reports, that BAT has expressed willingness to increase the offer price.”