British American Tobacco (BAT) yesterday made a $3.5bn (£2.3bn) bid for the stake it doesn’t already own in Souza Cruz, Brazil’s biggest cigarette maker, taking advantage of a plunging real to expand in Latin America.
BAT will pay 26.75 reais a share in cash for the 24.7 per cent stake it doesn’t already own, the London-based maker of Lucky Strike and Dunhill cigarettes said in a statement today.
That’s 13 per cent above the Brazilian company’s 20 February closing price, the last trading day before it disclosed that it was considering such a bid. “This is a bit of sensible opportunism by BAT,” Martin Deboo, an analyst at Jefferies, said. “While the real is weak they can buy the asset at a very compelling price.”
The real dropped 13 per cent against the pound over the past year. Brazil is BAT’s biggest market, accounting for about 12 per cent of operating profit, according to Exane BNP Paribas. The acquisition would give BAT full control over one of the world’s top producers of tobacco.
Such a deal, which BAT considered about a decade ago, would be “strategically attractive,” and Brazil could play a bigger role in its Latin American expansion, the company said last week.
NM Rothschild & Sons was appointed as an independent evaluator of the bid, which is subject to Brazilian regulatory approval.
Souza Cruz rose 1.4 per cent to 25.46 reais in early trading in Sao Paulo yesterday. BAT closed up 0.28 per cent at 3,767p in London.