BUSINESS: British American Tobacco plans $47bn Reynolds merger

British American Tobacco is planning to merge with its US partner Reynolds in a deal valued at $47bn (£38bn).

BAT wants to buy the 57.8% of Reynolds it does not already own.

The merger would bring together some of the tobacco industry's best-known brands, including Lucky Strike, Rothmans, Dunhill and Camel cigarettes.

BAT has been a shareholder in Reynolds since 2004 and the company said the merger was "the logical progression in our relationship".

The FTSE 100 company is offering $20bn in cash and $27bn in shares for the US business. This values Reynolds at $56.50 a share, compared to its closing price of $47.17 on Thursday.

BAT estimates that it can make $400m worth of cost-savings through the merger, which includes assets such as Reynolds' production facility in Tobaccoville, North Carolina.

BAT has held a significant stake in the company for 12 years after merging its US operations, known as Brown & Williamson, with RJ Reynolds. A new parent company was established at the time, of which BAT owns a 42.2% share.

RJ Reynolds has been operating since 1875 and is the second largest tobacco company in the US after Altria, which owns Philip Morris USA.

Last year, Reynolds completed its $25bn takeover of US rival Lorillard. The combined company was forced to sell off a number of brands, including Kool, Salem and Winston, to satisfy regulators. They were eventually bought by Britain's Imperial Tobacco for $7.1bn.

BAT also released results for the first nine months of the year on Friday which showed that revenue rose by 8.1% on a constant currency basis.

The company said there would be an impact from the fall in sterling against the dollar and that trading remained "challenging" in a number of key markets.

Shares in BAT rose nearly 3% to £49.40 in early trading.