European Stock Exchanges Strengthen After BAT’s Announcement of Reynolds Acquisition

On European stock exchanges, the major indices rose on Friday, supported by the news that British American Tobacco (BAT) is interested in acquiring American Reynolds for $47 billion.

The pan-European STOXX 600 index was up 0.1 percent around 11:30 AM, after reaching its highest level in the last two weeks yesterday. However, it is down 5.7 percent since the beginning of the year. At the same time, the London FTSE was up 0.10 percent at 7,034 points, the Frankfurt DAX by 0.09 percent at 10,711 points, while the Paris CAC stagnated at 4,539 points.

On Friday, BAT offered to purchase the remaining part of the American tobacco company Reynolds American for $47 billion, and the completion of this deal would create the largest publicly traded tobacco company in the world. The British tobacco group, which already owns 42 percent of Reynolds, announced that it is offering $56.50 per share for the acquisition of the rest of Reynolds, of which $24.13 would be in cash and $32.37 in BAT shares, representing a 20 percent premium on Reynolds’ share price at Thursday’s close on Wall Street. In total, BAT would offer $47 billion for the remaining 57.8 percent ownership stake in Reynolds, with approximately $20 billion in cash and $27 billion in its shares, BAT announced.

The price of BAT shares rose by 2.6 percent, and analysts welcomed this potential deal, assessing that it would strengthen BAT’s earnings through potential cost reductions of approximately $400 million and enhance its position in the American tobacco market.

– From a strategic perspective, the key is economies of scale. Reynolds American and BAT have a technology agreement and collaborate on many issues, so this is mainly about taking control of a significant part of the world’s largest profit pool, writes a Berenberg analyst.

The rise in stock exchanges is also supported by a jump in SAP’s share price by 2.9 percent, after the German software company raised its operating profit forecast for this year and announced that it expects strong business performance in the last quarter. Vale’s shares also significantly increased by 3.9 percent, after the auto parts manufacturer raised its business estimates for this year, following a 16 percent increase in sales in the third quarter. Meanwhile, the biggest gain was seen in Yara’s shares, up 5.9 percent, as the Norwegian fertilizer producer reported better-than-expected revenues and profits from core operations.