Key Positives of Deal: (1) Provides BAT with full ownership of the lucrative U.S. market, complementing its existing presence in high growth emerging markets; (2) Significant synergies/cost savings above the original $400MM synergy target; (3) Creates the world’s largest listed RRP company with better aligned incentives and greater investments in RRPs; and (4) Geographic diversification. Concerns/Risks: (1) BAT is the only logical buyer of RAI which limits upside to the offer price; and (2) Cultural/integration risk.
Probability of PM/MO Combining Even Higher In Our View – Applying the BAT/RAI deal multiple of 16.0x FY16E EBITDA to a potential PM/MO combo suggests MO is worth at least $76/share, which we believe PM could fund at 60/40% stock/debt. We don’t expect PM to sit idly by as BAT becomes the world’s largest global tobacco & RRP company. We believe this increases the probability that PM will acquire MO as discussed by Reuters without PM/MO comment.
on Wed, 01/18/2017 - 01:48 admin