British American Tobacco will launch a huge bond offering to fund its takeover of Reynolds

Courtney Goldsmith
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Tobacco Giant Reynolds American In Talks To Purchase Lorillard, Maker Of Newport Cigarettes
Pall Mall cigarettes are made by Reynolds American (Source: Getty)

British American Tobacco (BAT) plans to sell $17.25bn (£13.29bn) of debt to fund the company's $49.4bn acquisition of US rival Reynolds American, according to reports.

The London-based tobacco giant's US dollar bond offering will be one of the largest corporate bond deals of the year.

The offering will be in as many as eight parts, a source told Bloomberg, with the longest part potentially a 30-year security that yields 1.7 percentage points above treasuries, which is down from initial talk of between 1.8 percentage points to 1.85 percentage points, the source said.

Read more: British American Tobacco turns to next-gen products as smoking wanes

The company is also said to be looking into selling euro or sterling-denominated debt.

BAT will use the proceeds to refinance its huge takeover deal for Reynolds, which is expected to create the world's largest listed tobacco company. The cash portion of the deal was $24.4bn, and BAT had said it would finance that with a combination of existing cash resources, new bank credit lines and new bond issuances.

The bond deal comes at a turbulent time for the company, however.

Last week, the Serious Fraud Office (SFO) announced it had opened an probe into the cigarette maker over allegations of misconduct.

The SFO said it was investigating "suspicions of corruption in the conduct of business" at the company and its subsidiaries.

And the week before that, shares in BAT tumbled as much as 11 per cent after the US Food and Drug Administration (FDA) announced plans to cut nicotine in cigarettes.

The planned measures include looking into ways to lower nicotine levels in traditional cigarettes to "non-addictive levels".

BAT's FTSE 100 stock closed down 1.29 per cent today at 4,999p.

Read more: British American Tobacco shares tumble as SFO launches investigation

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