BAT agrees terms to buy Reynolds for $49.4 billion

British American Tobacco on Tuesday announced that it had agreed terms to buy US rival Reynolds American ending months of negotiations and paving the way for the creation of the world's biggest tobacco company by market value.

In a release on its website, the company said it had increased its offer for the 57.8 per cent of the company that it did not already own to $49.4bn (£40bn) and that the offer had been approved by a committee of independent Reynolds directors established with the purpose of evaluating the BAT offer.

Reynolds shareholders will receive $29.44 in cash and 0.5260 BAT shares for each of their shares under the terms of the deal, representing a 26 per cent premium over the stock's closing price on October 20.

BAT had previously offered $47bn, an offer that was rejected for being too low in November.

The maker of Lucky Strike and Rothman’s cigarettes said that the combined company would have “a balanced presence in high-growth emerging markets and high-profitability developed markets, combined with direct access to the attractive US market.”

BAT said that it expects at least $400m of annualised cost synergies in three years’ time.

“Our combination with Reynolds will benefit from utilising the best talent from both organisations,” said BAT’s chief executive, Nicandro Durante.

“It will create a stronger […] business with direct access for our products across the most attractive markets in the world. We believe this will drive continued, sustainable profit growth and returns for shareholders long into the future,” he added.

BAT said that the cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds.