Friday, October 21, 2016

British American Tobacco Bids for Reynolds American

Really big news today I'm sure you've heard by now. British American Tobacco(BTI) has proposed to purchase Reynolds American(RAI) for $47 billion dollars or a roughly 19% premium to yesterdays price. Both are members of The Long Haul Portfolio©.

That offer values the shares at $56.50 each, and the transaction would entail $24.13 in cash for each share, and .5502 of BTI shares for each share of RAI held. In other words if you own 100 shares you'll get 55 shares of BTI, and $2,413 in exchange.

What a crazy week for RAI as it fell below $44 the other day after disappointing earnings results. I think this deal makes a lot of sense for BTI.  They already own 42% of RAI, and it gives them larger access to the US market, and the accompanying strong dollar that should help boost results. Additionally with rates still low the company can still access debt cheaply to help finance the acquisition.

This will make the company potentially the largest publicly traded tobacco name in the world. Shares of Altria, Phillip Morris, and Vector Group are also up today.  This is the big boost to the portfolio I was just mentioning about with our tobacco shares. This will certainly help results for Q4 if momentum can be maintained.

I'll also add this is the second name on our list that has received a buyout offer this year as WhiteWave(WWAV) food is scheduled to be merged with Danone at the end of this year.

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