Reynolds American is reported to have rejected British American Tobacco’s $47bn (£38bn) takeover bid and told the UK company to return with a higher offer.
The companies have been in talks since BAT announced its offer on 21 October, in a move that would create the world’s biggest publicly traded tobacco company and put BAT back in the US after a 12-year absence.
Discussions are continuing and BAT is prepared to increase its offer slightly, according to Bloomberg. BAT has said Reynolds shareholders will gain from the deal by owning a stake in a bigger company with the clout to sell brands around the world.
BAT, whose brands include Lucky Strike and Benson & Hedges, owns 42.2% of Reynolds and is offering to buy the remainder of the company, whose origins predate the American war of independence.
The British company has owned a stake in the maker of Camel and Newport cigarettes since 2004, when it merged its US subsidiary, Brown & Williamson, with RJ Reynolds Tobacco to create Reynolds American.
Speculation had brewed for months that BAT might decide to buy out Reynolds as tobacco companies jockey for position amid declining smoking rates and increased regulation. US population growth has kept the number of smokers at about 45 million for several decades.
BAT’s $56.50 a share offer in cash and shares was worth 20% more than Reynolds’ closing price before the bid was revealed and valued the US company at about £66bn.
BAT has said it will pursue the takeover only if it has the support of Reynolds’ board. The UK company was forced to reveal its offer because its large stake in Reynolds compelled it to go public under US law.
The combined firm would be worth about £146bn and would overtake Philip Morris as the biggest public tobacco company. As well as securing a place in the US market, BAT would acquire Reynolds’ leading position in electronic cigarettes.
BAT shares, which have fallen 10% since it announced its offer for Reynolds, were little changed at £42.91 in early afternoon trading on Tuesday. A BAT spokesperson declined to comment.
