Is Reynolds Just Flirting With British American Tobacco? Takeover Rejection Amid Deal Optimism

British American Tobacco PLC (ADR) BTI picked an ideal time back in October to acquire the remaining stake in Reynolds American, Inc. RAI it already didn't own. The only problem is Reynolds rejected the offer on Monday.

Reynolds stock lost close to 1 percent on Monday but was trading higher by more than 2.50 percent early Tuesday morning. Part of the rebound could be attributed to an encouraging research report by analysts at Citi.

Rejection Could Be A Coy Ploy

Citi's Adam Spielman commented in a note on Tuesday that Reynolds' rejection is merely a "formality," as Reynolds is looking for a higher price from British American Tobacco.

Spielman continued that this isn't surprising, as it is merely part of the "well-established dance involved in takeovers." The analyst also highlighted a Bloomberg report that suggested British American Tobacco is willing to slightly increase its offer.

"If anything it suggests an agreement might come soon — The rejection comes a little over three weeks after the initial offer (October 21), which is on the faster side of our expectations," Spielman added.

Bottom line, Spielman is expecting an agreement to finalized in December or January and that a Donald Trump administration makes the deal even more attractive for British American Tobacco.