Johannesburg - British American Tobacco (BAT) is spending $49.4 billion (R671 billion) as it seeks to get a real foothold in the growing global vapour market.
The company said on Tuesday that it was moving ahead with a deal to buy the 57.8 percent stake it did not already own in Reynolds American for $49.4 billion as it looks to new generation technology for future growth.
The transaction would see BAT, which has held a 42 percent stake in Reynolds since 2004, becoming the largest listed tobacco company in the world, leapfrogging Philip Morris International.
The transaction brings together brands such as Dunhill, Rothmans and Camel cigarettes under the same roof. It also adds a key e-cigarette element to its portfolio.
Tobacco companies have spent billions of dollars in recent years as they jostle for a superior market share of the lucrative e-cigarettes market. According to Bloomberg Intelligence, the e-cigarette and vapour market is expected to be worth $15 billion by 2019, a massive jump from the $5.2 billion it was valued at in 2015.
Kingsley Wheaton, the managing director of next-generation products at BAT, said the less risky alternative products offered the company with opportunities to further grow its business, apart form traditional cigarettes.
BAT had previously said it had invested £500 million (R8.18 billion) in researching and developing a range of products for consumers looking for less risky alternatives to cigarettes.
Chief executive Nicandro Durante said the company was executing its strategy of delivering strong results and returns for its shareholders while investing in future growth areas.
“Our combination with Reynolds will benefit from utilising the best talent from both organisations, it will create a stronger, global and new generation business with direct access for our products across most attractive markets in the world,” Durante said.
The transaction would be financed in two ways: $24.4 billion in cash and $25 billion in BAT American Depository Receipts.
The company said the cash component of the transaction would be financed by a combination of existing cash resources, a new bank credit line and the issue of new bonds.
Read also: BAT buys rest of Reynolds for R670bn
The parties said that the deal was expected to be concluded during the third quarter of this year, subject to regulatory approvals.
In 2015, BAT acquired Polish e-cigarette company CHIC Group for an undisclosed amount.
Reynolds executive chairman Susan Cameron said the deal would allow the company to offer better alternative products.
“This combination will create a truly global tobacco company with multiple iconic brands, and a world class pipeline of next-generation vapour and tobacco-heating products,” Cameron said.
Reynolds owns Vuse Digital Vapor Cigarette.
Philip Morris last year launched a non-burning cigarette in the UK, iQos.
The company, which owns brands such as Marlboro and Chesterfield, had said it had invested $3 billion in the iQos.
BAT shares closed 1.57 percent lower on the JSE at R770 on Tuesday.