Shares in British American Tobacco (BAT) rose more than four per cent by lunchtime after it offered to fully acquire Reynolds American in a $47bn (£38.4bn) deal.
London-listed BAT already owns 42.2 per cent of Reynolds, but shares rose to 4,999.75p after it offered to acquire the remaining 57.8 per cent at $56.50 per share, representing a 20 per cent premium.
BAT said in a statement that the total consideration for the remaining share of Reynolds would be $47bn, made up of approximately $20bn in cash and $27bn in BAT shares.
The company said the merger will create the world’s largest listed tobacco company by net turnover and operating profit.
"We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US market," said BAT chief executive Nicandro Durante.
The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next generation products company.
BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future.
BAT said it could make $400m of savings through the deal, which needs to be approved by Reynolds’ independent directors and shareholders of both companies.