British American Tobacco (BAT) Acquisition of RAI - Case Study

GLOBAL FINANCIAL MARKET
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M010LON GLOBAL FINANCIAL MARKET
Case Study: British American Tobacco (BAT) Acquisition of RAI
Coursework 1: Group Work Report

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Background Research
Tobacco industry has continued to witness tremendous growth over the years. A major player in
this industry has been the British American Tobacco Plc. (BAT) establishing itself a trusted
brand in the manufacture of tobacco products. The company has an international outlook with
branches in all parts of the globe. The company has a wide range of products including Dunhill
and Lucky Strike just to mention a few. In addition, BAT has established a range of products that
are all-inclusive. These products include such as Viceroy, Vogue and Benson and Hedge, just to
mention a few. The company has over forty material handling industries operating in just over
forty one nations around the globe. On the contrary, Reynolds American Inc. (RAI) was founded
as a holding company comprising of parts. These parts included American Snuff, RJR Tobacco,
R.J Reynolds Tobacco Company and Santa Fe. The different entities of the company had a
contribution to making sure that the association had the strength it required. RJR's Tobacco
Products Sector oversees the contract manufacturing of cigarettes with the BAT branches, which
allows the passage of tobacco products into non-binding stores in the United States and in the
forces' establishments US armies abroad. Similarly, the American Snuff segment was involved in
the production of tobacco products that are smokeless (soggy snuff). These products targeted the
older customers and the adults. Santa Fe, on the other hand, was involved in the marketing
tobacco products of the best quality branding the products as suitable for the common American
people.
Recent years have seen the British American Tobacco company completely acquire Reynolds
American Inc. with the latter becoming and indirect subsidiary of British American Tobacco.
This merger also made Reynolds American to cease trading in the New York Stock Exchange on
24th of July, 2017.

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The acquisition of Reynolds Americans (RAI) by British American Tobacco (BAT) took the
existing shareholders into consideration. Every Reynolds American (RAI) shareholder received a
cash amount worth $29.44 without any interest. Each shareholder also received a number of
British American Tobacco (BAT) Depository Shares. The British American Tobacco Depository
shares represent 0.5260 of BAT ordinary shares. The merger agreement provided for the sale of
any fractions of American Tobacco (BAT) Depository Shares that resulted from the merger. The
fractions of shares were sold out at the market prices. The holders of American Tobacco (BAT)
Depository Shares received a pro rata share of the net proceedings from the sales. The new
American Tobacco (BAT) Depository Shares are currently traded in the New York Security
Exchange market under the ticket symbol BTI. The currency under which American Tobacco
(BAT) Depository Shares are traded is United States (US) Dollars ($) (British American Tobacco,
2012).
Comprehensive Valuation of BAT and RAI prior to the acquisition
The valuation approaches of an organization are focused on adventure, esteem, commitment and
various perspectives such as decisions, preferred shares and minority interests of Festus
(Gaughan, 2011). The commitment taken into account insinuates estimation of the worth of the
beneficial actions the association was involved in. The estimation of the worth of the esteem
corresponds to the valuation of the offers. The evaluation of the commitments focuses on the
structure of the estimation of the tasks of the association. As part of this review, the reduced free
wage system was used to develop a huge business estimate of associations and esteem. Respect
for esteem was used to choose the supply expenditure of each association (Mitchelle & Philip,
2011) BAT made a proposition to acquire Reynolds at $ 49.4 billion. This figure implied that