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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