$50bn merger will create world's biggest tobacco company

British American Tobacco is re-entering the US market after a 12-year absence...

$50bn merger will create world's biggest tobacco company

Picture by PA PA Archive/PA Images

The global tobacco sector has a new top dog, as British American Tobacco (BAT) announces its plans to merge with fellow cigarette giant Reynolds.

The British company will pay $49.9 billion in a cash and shares deal to acquire the 57.8% stake it doesn't own already in Reynolds. 

This is close to $2.5bn higher than the unsolicited bid of $47bn made by BAT in October and which was rejected by the board of Reynolds it values the whole of Reynolds at approximately $86 billion.

The deal, if it proceeds, will create the world’s largest tobacco company by net turnover and operating profit. It will also mark BAT's return to the US market after a 12-year absence, putting it in the unique position of having a presence in American and international markets.

BAT’s brands include the likes of Dunhill and Lucky Strike, while Reynolds – the second largest US manufacturer –is best know for its Camel brand. BAT believes the deal will help it secure a "significant presence in high growth emerging markets across South America, Africa, the Middle East and Asia, together with the most attractive developed markets."

BAT Chief Executive Nicandro Durante said of the merger:

"It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world."

The global cost of smoking

It was revealed last week that the negative effects of smoking drain the global economy of more than $1 trillion annually, dwarfing the take from tobacco taxes. The study by the World Health Organisation (WHO) and the US National Cancer Institute estimates that roughly $269 billion in tax revenues was taken in 2013/14. This figure only takes care of roughly one-quarter of the expense of healthcare and lost productivity.

It is expected that these economic costs will continue to climb.

The number of deaths as a result of smoking is only increasing, projected to climb from the current six million per year to eight million by 2030. Increasingly, it is becoming a problem most commonly found in less affluent nations.

Over 80% of the projected 30 million deaths will occur in low and middle-income countries, as four in five smokers live in these nations. The total number of smokers worldwide is also rising, despite it becoming less prevalent around the world. It remains the single biggest preventable cause of death globally, according to health experts.