BAT Shares Gain Amid Speculation of Reynolds Bid for Lorillard

British American Tobacco Plc (BATS), Europe’s biggest cigarette maker, rose in London trading on speculation that the company may help fund a bid for Lorillard Inc. (LO) by Reynolds American Inc. (RAI)

BAT rose 1.8 percent to 3,589.50 pence at 8:22 a.m., valuing the London-based company at 67.3 billion pounds ($113 billion).

Reynolds is in advanced talks to acquire Lorillard, a deal that could take the form of a three-way transaction with BAT taking a “major role” in backing the merger, Reuters reported late yesterday. By providing funds, BAT might be able to maintain its 42 percent stake in Reynolds, which has a market value of $32 billion, Reuters said.

“We don’t know precisely what, if any, transaction could emerge, but we suspect that assuming one does it will be advantageous for BAT,” Adam Spielman, an analyst at Citigroup Inc. in London, said in a note.

BAT declined to comment on “rumors or speculation.” Bob Bannon, a spokesman for Greensboro, North Carolina-based Lorillard, declined to comment on the report. Bryan Hatchell, a spokesman for Winston-Salem, North Carolina-based Reynolds, didn’t respond to messages seeking comment.

Lorillard rose 10 percent to $62.63 in New York yesterday, valuing the maker of brands including Newport and Maverick at $22.7 billion. Reynolds, whose cigarette brands include Camel and Pall Mall, gained 4.4 percent to $59.77.

Merger speculation has propelled Lorillard shares up 24 percent this year, while Reynolds stock has risen almost 20 percent. The two companies are the biggest sellers of tobacco in the U.S. after Altria Group Inc. (MO)

‘Formidable Competitor’

“If the reports prove correct, we suspect the aim is to create a company containing the Newport, Camel, Pall Mall, Natural American Spirit and Grizzly brands, which would make a formidable competitor in the U.S.,” Citigroup’s Spielman wrote in the note. Other brands would likely have to be sold for antitrust reasons, according to the analyst.

Imperial Tobacco Group Plc (IMT) may be interested in assets that were made available for sale, Spielman said.

“If Imperial were able to pick up a bundle of brands in the U.S. at a value-accretive price, it could benefit materially,” he said.

A spokesman for the Bristol, England-based company could not immediately be reached for comment. The stock gained 1.8 percent to 2,695 pence at 8:22 a.m. in London.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net

To contact the editors responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net Marthe Fourcade, David Risser

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