RJR and BAT Agree to Combine U.S. Assets and Operations
28 October 2003 - 8:43AM
PR Newswire (US)
RJR and BAT Agree to Combine U.S. Assets and Operations
WINSTON-SALEM, N.C., Oct. 27 /PRNewswire-FirstCall/ -- R.J.
Reynolds Tobacco Holdings, Inc. and British American Tobacco p.l.c.
today announced the signing of a definitive agreement to combine
the assets and operations of their respective U.S. tobacco
businesses: R.J. Reynolds Tobacco Co. (RJRT) and Brown &
Williamson Tobacco Corp. (B&W). The agreement provides for
establishing a new publicly traded holding company, Reynolds
American Inc., with approximately 150 million shares outstanding.
BAT will own 42 percent of Reynolds American Inc. through B&W
with existing RJR shareholders owning 58 percent through a
one-for-one exchange for stock of the new company. The company
expects the transaction to be tax-free to RJR shareholders and to
BAT. The agreement provides for B&W to transfer to RJRT all
Master Settlement Agreement liabilities and the corresponding cash
balance to cover previously accrued payment obligations. The amount
is contingent on the timing of closing the transaction, but
averages approximately $750 million during the year. RJR Tobacco
will indemnify B&W for all existing and any future litigation
relating to its U.S. business. In addition, the contributed assets
of B&W included in the agreement will be debt-free. RJR will
pay BAT $400 million in cash to acquire the stock of Lane Limited,
a subsidiary that manufactures several cigar, roll-your-own and
pipe tobacco brands and distributes Dunhill tobacco products. The
transaction is expected to close in mid-year 2004, pending the
necessary approvals from U.S. regulatory authorities and RJR
shareholders, as well as Internal Revenue Service rulings. The
combination will consolidate the second and third largest U.S.
tobacco companies. On a combined 2002 basis, Reynolds American Inc.
would have annual revenues of approximately $10 billion, annual
domestic cigarette volume of 136 billion units, and over 30 percent
of the cigarette sales in the United States. "This agreement marks
a milestone for both companies," said Andrew J. Schindler, chairman
and CEO of RJR. "The combination of these companies will enable us
to achieve tremendous efficiencies, and will greatly enhance our
ability to compete effectively in the U.S. market. The merger is
expected to be accretive to earnings and provide outstanding value
and return to shareholders. RJR and BAT recognize the mutual
benefits of this combination and share a strong desire to complete
the deal," said Schindler. "This exciting combination makes both
strategic and financial sense," said Martin Broughton, chairman of
BAT. "This merger will improve our competitive position in the most
important cigarette market in the world. It gives the Group a 42
percent share in a stronger and more sustainable business with an
enhanced brand portfolio. "We believe that the merger is the best
way to achieve our long-term strategic ambitions in the U.S.
market, while improving both our earnings per share and our cash
flow in the first full year following completion," Broughton said.
The companies have agreed to a multi-year contract for BAT's export
product currently produced by B&W to be manufactured by R.J.
Reynolds Tobacco. BAT will retain the rights to use all its
international trademarks outside the United States. After the
transaction closes, the full integration of B&W's operations
into RJRT, including the sales forces, manufacturing operations,
and other areas, is expected to take 18 to 24 months. The company
plans to consolidate headquarters and operations in Winston-Salem,
N.C. The full integration of the companies is anticipated to
generate more than $500 million in annualized savings. Schindler
will serve as executive chairman of Reynolds American Inc. for a
six-month period after closing and then as non-executive chairman.
Susan Ivey, currently president and CEO of B&W, will serve as
president and CEO of Reynolds American Inc. Announcements regarding
the balance of the executive management team will be made at a
later date. The new board of Reynolds American Inc. will consist of
13 members, including Schindler and Ivey, six directors from the
existing RJR board and five directors designated by BAT (three
independent and two BAT executives). BAT will receive the rights
typically afforded a substantial minority shareholder. RJR intends
to continue paying its annualized $3.80 dividend. Under terms of
the agreement, the designated Reynolds American management will
recommend to the new board an annual dividend payout policy of
approximately 75 percent of net income. After closing, the
practical implications of the 42 percent ownership by BAT are
likely to preclude substantial share repurchase programs by
Reynolds American Inc. The agreement includes a 10-year
"standstill" provision that generally prevents BAT from buying
shares that would increase its holding above 42 percent of the
outstanding Reynolds American Inc. stock. Certain limits are also
placed on BAT's ability to sell its stock in the new company. In
addition to the combined RJRT, Santa Fe Natural Tobacco Company and
Lane Limited will operate as independent subsidiaries of the new
holding company. RJR was advised on the transaction by Lehman
Brothers Inc., and J.P. Morgan Securities Inc. Additional
Information and Where To Find It Reynolds American Inc., the
holding company to be formed in the proposed business combination,
intends to file a registration statement on Form S-4 that will
include a proxy statement/prospectus and other relevant documents
in connection with the proposed business combination. INVESTORS AND
SECURITY HOLDERS OF R.J. REYNOLDS TOBACCO HOLDING INC. ("RJR") ARE
ADVISED TO READ THESE DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED BUSINESS
COMBINATION. Investors and security holders may obtain a free copy
of the prospectus/proxy statement (when it becomes available) and
other documents filed by RJR and Reynolds American Inc. with the
SEC at the SEC's web site at http://www.sec.gov/. Free copies of
the prospectus/proxy statement, when it becomes available, as well
as RJR's and Reynolds American Inc.'s related filings with the SEC,
may also be obtained from RJR by directing a request to R.J.
Reynolds Tobacco Holdings, Inc. at P.O. Box 2866, Winston-Salem, NC
27102-2866, Attn.: Office of Investor Relations, or by telephone at
(336) 741-5165 or on RJR's website, http://www.rjrholdings.com/.
Forward-Looking Information Statements included in this news
release which are not historical in nature are forward-looking
statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although RJR
believes that these expectations are based on reasonable
assumptions, it can give no assurance that the business
combination, if consummated, will be successful or that other
expectations will be realized. Factors that could affect whether
the transaction is completed include the satisfaction of all
conditions to the business combination that cannot be waived and
the satisfaction or waiver of all other conditions, including those
described above. Factors that could affect the future performance
of Reynolds American Inc. following completion of the transaction,
include the substantial and increasing regulation and taxation of
the cigarette industry; various legal actions, proceedings and
claims arising out of the tobacco business and the claimed health
effects of cigarettes that are pending against RJRT or B&W or
may be instituted against Reynolds American Inc. or its
subsidiaries; the substantial payment obligations and limitations
on the advertising and marketing of cigarettes under various
litigation settlement agreements; the continuing decline in volume
in the domestic cigarette industry; competition from other
cigarette manufacturers, including increased promotional activities
and the growth of the deep-discount category; the success of new
product innovations and acquisitions; the effect of market
conditions on the performance of pension assets and the return on
corporate cash; any potential costs or savings associated with
realigning the cost structure of Reynolds American Inc. and its
subsidiaries and otherwise realizing synergies from the combination
of RJRT and B&W; and the ratings of RJR's securities. Except as
required by the federal securities laws, we undertake no obligation
to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Interests of Participants RJR, its directors and executive officers
and certain other members of management and employees may be deemed
to be participants in the solicitation of proxies from RJR
stockholders in favor of the proposed business combination. A
description of the interests of the directors and executive
officers of RJR is set forth in RJR's proxy statement for its 2003
annual meeting, which was filed with the SEC on March 19, 2003.
Investors and security holders may obtain additional information
regarding the interests of such potential participants in the
proposed business combination by reading the prospectus/proxy
statement and the other relevant documents filed with the SEC when
they become available. In addition, since the referenced proxy
statement, Robert S. (Steve) Miller Jr. was elected to the board of
directors of RJR. As of Oct. 27, 2003, Mr. Miller was the
beneficial owner of 1,000 shares of RJR's common stock, which does
not include 10,000 shares issuable upon the exercise of stock
options held by him that are exercisable on or after Jan. 1, 2004.
If the proposed business combination is consummated, Mr. Miller's
options will be immediately exercisable. Additional information
regarding Mr. Miller and any interests he may have in the proposed
business combination will be set forth in the prospectus/proxy
statement and other relevant documents filed with the SEC when
filed with the SEC. R.J. Reynolds Tobacco Holdings, Inc. is the
parent company of R.J. Reynolds Tobacco Company and Santa Fe
Natural Tobacco Company, Inc. R.J. Reynolds Tobacco Company is the
second-largest tobacco company in the United States, manufacturing
about one of every four cigarettes sold in the United States.
Reynolds Tobacco's product line includes four of the nation's 10
best-selling cigarette brands: Camel, Winston, Salem and Doral.
Santa Fe Natural Tobacco Company, Inc. manufactures Natural
American Spirit cigarettes and other tobacco products, and markets
them both nationally and internationally. Copies of RJR's news
releases, annual reports, SEC filings and other financial materials
are available on the company's website,
http://www.rjrholdings.com/. DATASOURCE: R.J. Reynolds Tobacco
Holdings, Inc. CONTACT: Investor Relations, Carole Biermann-When,
+1-336-741-5182, or Media, Maura Payne, +1-336-741-6996, both of
R.J. Reynolds Tobacco Holdings, Inc. Web site:
http://www.rjrholdings.com/
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