WINSTON-SALEM, N.C. — The 10th anniversary of Reynolds American Inc.’s formation was celebrated Friday by company executives’ triumphant ringing of the closing bell at the New York Stock Exchange, according to the Winston-Salem Journal.
It also came and went in a nonevent, anticlimactic way, which was good for an employee base and community that had been braced for a potential change in ownership around the anniversary date.
Even since Reynolds completed its $4.4 billion purchase of Brown & Williamson Tobacco Corp. on July 30, 2004, there had been talk about what the deal would mean for Reynolds’ future.
To pull off the deal, Reynolds’s board of directors agreed to sell a 42 percent ownership stake to British American Tobacco Ltd., which had owned Brown & Williamson as its U.S. subsidiary. BAT also gained five representatives on the Reynolds board.
The companies agreed on a 10-year moratorium on BAT buying more Reynolds stock, which would require Reynolds board approval. The moratorium ended Wednesday.
There had been about as many media reports and analyst forecasts on BAT taking majority ownership of Reynolds – in the process making Reynolds its U.S. subsidiary – as there had been for Reynolds buying Lorillard Inc. to acquire top-selling menthol brand Newport.
“I couldn’t be more proud of the great progress we’ve made since the merger and the start of our transformation journey,” Susan Cameron, Reynolds’ president and chief executive, said in a statement after the event.
Cameron has served as the company’s top executive for about seven of the 10 years, including a stint from July 2004 to February 2011 before entering retirement.
“Over the past decade, we’ve driven change across our companies and industry, found new opportunities for sustainable growth, and returned excellent value to our shareholders,” Cameron said.
Reynolds touted it had generated a total shareholder return of 542 percent, outpacing the S&P 500’s 112 percent return.
“Thanks to our employees and our companies’ powerful key brands, we’re well on the way to our ultimate goal of achieving market leadership in a transformed tobacco industry,” Cameron said.
Instead of taking the stock-buying plunge, BAT chose instead to make a $4.7 billion investment in Reynolds stock to keep its ownership stake at 42 percent. That investment played a key role in Reynolds putting together its $27.4 billion deal offer to Lorillard, announced July 15.
Reynolds began this week the regulatory filing process for getting Federal Trade Commission approval of the deal, which would combine the No. 2 and No. 3 U.S. tobacco manufacturers.
A key element of BAT’s expanded alliance with Reynolds is agreement on a joint technology sharing and commercialization strategy for next-generation products. That would include BAT globally distributing Reynolds’ electronic cigarette, Vuse, which saves Reynolds the cost of reestablishing an international distribution channel, and adds a critical new source of revenue.
That doesn’t mean the rumors have stopped on an eventual BAT deal for Reynolds.
The Daily Mail of London has reported BAT might be willing to spend up to $75 a share to buy the remaining 310 million shares of Reynolds that it doesn’t own. Other analysts said the share price requirement could be as high as $82. Reynolds’ share price closed Friday down 10 cents to $55.75.
Wells Fargo Securities analyst Bonnie Herzog said she believes the deal for Lorillard’s Newport “sets foundation for BAT to possibly acquire Reynolds in a few years.” Herzog projected a 90 percent chance Reynolds would buy Lorillard a few months before the deal was announced.
“However, we think the strategic partnership the companies intend to pursue is the best of both worlds, and there is value created for shareholders whether or not Reynolds and BAT eventually combine,” Herzog said.