Trump Presidency Has Big Implications For British American Tobacco-Reynolds Merger

British American Tobacco PLC (ADR) BTI's pursuit of acquiring the remaining 58 percent of Reynolds American, Inc. RAI it doesn't already own remains ongoing.

The pursuit began prior to the U.S. election, but President-elect Donald Trump's win has major implications for the deal.

Experts' Commentary

According to a Bloomberg report, BAT offered to pay $47 billion for remaining 58 percent of Reynolds. However, Trump's proposal of slashing the corporate tax rate from 35 percent to 15 percent could change the price tag on the deal.

Reynolds is based in North Carolina and counts almost all of its $6 billion profit domestically so the company would benefit under Trump's proposal. The corporate tax rate reduction could justify Reynolds asking BAT paying up to an extra $8.2 billion.

Owen Bennett, an analyst at Jefferies, told Bloomberg that Trump's tax proposal "gives Reynolds more ammunition to negotiate a bump to the offer." Specifically, a 25 percent corporate tax rate would boost the fair value of Reynolds by around $5 per share but a cut to 15 percent would add more than $10 per share.

Bloomberg further suggested that BAT may find a new price tag to be unpalatable but it should nevertheless pursue the deal as doing nothing could be even more costly as BAT wouldn't be optimally positioned to take advantage of the $116 billion U.S. smoking industry.