|Title||Value of not burn smoking technology stalling BAT buyout|
|Description||The slow-burn negotiations between British American Tobacco (BAT) and Reynolds, the American maker of Camel cigarettes, towards a £38bn merger are stuck on the value of new technology Marlboro Red Cigarettes, it has been claimed.
BAT, which already owns 42pc of Reynolds, bid $56.50 per share in a mix of cash and stock in October, but was rejected.
The two companies have been attempting to thrash out a deal since, amid volatility in the value of consumer staples and against the backdrop of the election of Donald Trump.
Analysts at Jefferies said they expect a deal to be done at around $60, with a greater proportion of cash.
BAT, which owns the Dunhill and Benson and Hedges brands, is keen to acquire control of Reynold's more advanced "heat not burn" technology for smokers seeking a purportedly safer alternative Newport Cigarettes Carton Price, to challenge its global rival Philip Morris.
Jefferies' Owen Bennett told clients: "This technology (in our opinion) will be important to keep pace with Philip Morris in the race for global vapour share.
He added that effective competition would worth around £6 per share or more to BAT Newport Cigarettes, a "sizeable incentive for BAT to pay up."
Unlike e-cigarettes, heat not burn devices use tobacco to deliver nicotine. Proponents claim they offer an experience more akin to smoking than vaping. Sources close to the negotiations said the mix of cash and shares remained under discussion this weekend.
A BAT source said access to heat not burn technology was less important than Reynold's cash flow of more than $1.6bn, and that there was no deadline for an agreement to be reached Marlboro Cigarettes.
The FTSE 100 giant has recently seen a recovery in its shares, back to levels last seen before Mr Trump's victory in November.
Analysts also claimed that potential corporation tax cuts proposed by the President-elect on the campaign trail could have a bearing on the ongoing talks.
RBC said that if the rate is cut to 15pc until 2024, compared with the current 37pc, a fair price for Reynolds would be $67 per share. The new administration meant more uncertainty for the deal, it added Tobacco Store.
"Despite the higher uncertainty created by different assumptions on the tax rate, higher offer price and different permutations of cash and shares financing, we still regard a deal as the more likely outcome," RBC told clients Wholesale Cigarettes. "We believe clarity on the tax rate (expected during the first 90 days of Trump's presidency) is needed before an agreement can be reached".
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