Reynolds American — Merger or Acquisition (January 2017)
48 slides from Reynolds American's merger presentation, Jan 17, 2017
Slide 1: Proposed Acquisition of Reynolds American Inc.
British American Tobacco p.l.c. Proposed Acquisition of Reynolds American Inc. January 2017
Slide 2: Forward looking statements
This presentation in relation to British American Tobacco p.l.c. (“BAT”) and its subsidiaries (collectively, the “BAT Group”) and Reynolds American Inc. (“Reynolds”) and its subsidiaries (collectively, the “Reynolds Group”, and together with the BAT Group, the “Group”) has been prepared solely for u
Slide 3: Additional information and where to find it
Additional information and where to find itThis communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC in connection with the Proposed Transaction. Any solicitation will only be made through materials filed with the
Slide 4: Compelling strategic rationale
Compelling strategic rationale Strategic Rationale Creates a stronger, truly global tobacco and Next Generation Products (NGP) companyDirect access to the attractive US marketA balanced presence in high growth emerging markets and high profitability developed marketsPortfolio of strong, growing glob
Slide 5: Compelling financial rationale
Compelling financial rationale Financial Rationale At least $400m annualised cost synergies anticipated by the end of year 3EPS and DPS accretive in first full year, targeting mid-single digit EPS accretion in year 3Beats the Group WACC for the US by year 5Strong financial profile with commitment to
Slide 6: Transaction highlights: key offer terms and financing
Transaction highlights Key offer terms Reynolds shareholders will receive US$29.44 in cash and 0.526x BAT shares per Reynolds shareValues each Reynolds share at $59.64*Represents a premium of 26% to the Reynolds closing price on 20 October 2016* Values 57.8% of Reynolds not already owned by BAT at c
Slide 7: Transaction highlights: timing and closing
Transaction highlights Timing and closing Transaction is recommended by the Transaction Committee of Reynolds and the Boards of both companies Subject to approval of Reynolds and BAT shareholders, certain customary closing conditions including regulatory approvalsTransaction expected to close in Q3
Slide 8: Timeline
Timeline SEC process expected to take 4 to 5 months BAT p.l.c. intends to be registered under the US securities laws as part of the transaction.New BAT shares will be issued to Reynolds shareholders in the form of NYSE-listed Level III ADRs as part of the deal consideration. BAT shareholder vote The
Slide 9: BAT - A proven track record of growth
Source: Company’s financial results as published 2012 EPS not restated for IAS19 BAT - A proven track record of growth… 10% average EPS growth at constant currency
Slide 10: ... and returns: 12% CAGR DPS growth
Source: Company’s financial results as published ... and returns 12% CAGR DPS growth
Slide 11: Highly attractive US market
Highly attractive US market Bn sticks 2015 Value $bn 2015 US CAGR 2015 – 20E: (2.1)% US CAGR 2015 – 20E: 1.8% *Income defined as GDP per capita (‘000) / average pack price (US$) Source: Euromonitor, Global Insights, Company internal data One of the biggest tobacco markets by volume… …and largest ope
Slide 12: A unique geographic footprint
A unique geographic footprint Greater proportion of Group volume will come from high growth markets Source: Company internal data, NTO at current rates Group (T40) 10 packs 5% Developing 13 packs +8% EquivalentNet Revenue Net Revenue/PackCAGR (2010-2015) USA 2 packs +5% Developed 6 packs +4% Volume
Slide 13: Combined business will have unique portfolio of strong brands
Combined business will have unique portfolio of strong brands… Nielsen data YTD Aug-16Reynolds press release Sep-16 T40 market share(a) US market share(b) 2.4% 2.3% 1.5% 3.3% 2.2% BAT 2016 vs. 2010GDB share +510 bps No. 2 in USNo. 1 menthol No. 3 in USNo. 3 menthol Fastest growing premium brand No.
Slide 14: To drive continued strong corporate share growth
Key Brand Share BAT Share To drive continued strong corporate share growth… RAI Operating Companies’Share* Source: BAT - Nielsen retail audit; Reynolds – BAT internal estimates, Euromonitor. Key brand share based on Reynolds and Lorillard public filings* Adjusted for current portfolio pro-forma volu
Slide 15: World class Next Generation Products
RAI* World class Next Generation Products Tobacco heating products Hybrid Closed vapour systems Open vapour systems 44% 60% 35% 9% 5% 2% Market shares based on Nielsen data where available, otherwise internal estimates * RAI Operating Companies Opportunity to create truly global leading NGP brands S
Slide 16: Compelling strategic and financial rationale
Compelling strategic and financial rationale Strategic Rationale Creates a stronger, truly global tobacco and Next Generation Products (NGP) companyDirect access to the attractive US marketA balanced presence in high growth emerging markets and high profitability developed marketsPortfolio of strong
Slide 17: Proposed Acquisition of Reynolds American Inc.
British American Tobacco p.l.c. Proposed Acquisition of Reynolds American Inc. January 2017
Slide 18: Social media posts and conference call transcript
The following communications were posted on January 17, 2017 by British American Tobacco p.l.c. on www.twitter.com under the Twitter handle @BATPress (https://twitter.com/BATPress) and reposted by British American Tobacco p.l.c. on certain other Twitter handles: #BritishAmericanTobacco announces agr
Slide 19: Social media post on next-gen products
Combined business with #ReynoldsAmerican will be only truly global company in fast-growing next-gen product category ow.ly/qc773084qMZ [Link to: http://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOAHNL68] 6.
Slide 20: Social media post: CEO and Finance Director webcast
7. Our CEO & Finance Director discuss our agreement to acquire #ReynoldsAmerican. Webcast playback here: ow.ly/t5Wf3085ml9 [Link to: http://streamstudio.world-television.com/CCUIv3/frameset.aspx?ticket=381-1352-17863&target=en-default-&status=ondemand&browser=ns-0-1-0-24-0&userDHtml5Video=true&strea
Slide 21: Social media post: combined company growth dynamics
8. Combined company #BATmerger to benefit from strong growth dynamics & a leading presence in key markets bit.ly/2jZF5zI [Link to: http://s2.q4cdn.com/129460998/files/2017-01-RAI-announces-entry-into-merger-agreement-with-BAT.PDF]
Slide 22: Proposed acquisition of RAI by BAT plc
Proposed acquisition of RAI by BAT plc Reynolds American Inc. Investor Presentation January 2017
Slide 23: Forward-Looking Information
Forward-Looking Information 2 Statements included in this communication that are not historical in nature, including financial estimates and statements as to regulatory approvals and the expected timing, completion and effects of the proposed transaction, are forward- looking statements made pursuan
Slide 24: Forward-Looking Information (continued)
Forward-Looking Information limitations put on RAI’s ability to pursue alternatives to the proposed transaction pursuant to the merger agreement; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the failure to realize projected synergie
Slide 25: Other Information: additional information and where to find it
Other Information ADDITIONAL INFORMATION AND WHERE TO FIND IT This communication may be deemed to be solicitation material in respect of the proposed transaction involving RAI and BAT. In connection with the proposed transaction, BAT will file with the SEC a registration statement on Form F-4 that w
Slide 26: Other Information: participants in solicitation
Other Information PARTICIPANTS IN SOLICITATION RAI, BAT and their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from RAI shareholders in respect of the proposed transaction that will be described in the proxy statement/p
Slide 27: Adjusted vs. GAAP
Adjusted vs. GAAP RAI management uses ‘adjusted’ (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and believes that investors’ understanding of the underlying performance of the company’s continuing operations is enhanced through the disclosure
Slide 28: Transaction highlights
Transaction highlights Susan Cameron Executive Chairman
Slide 29: Transaction overview
Transaction overview Cash and stock transaction valuing RAI at $59.64 per share 26.4 percent premium to RAI stock price on Oct. 20, 2016 Approved by Transaction Committee of RAI board of directors and by RAI board Total RAI enterprise value of more than $95 billion Unique opportunity for future grow
Slide 30: Our Transformation Journey
Our Transformation Journey Proposed RAI Acquisition RAI Innovations Created Lorillard Acquisition VUSE Digital E-Cigs Niconovum Aquisition Camel SNUS Introduction American Snuff Aquisition R.J. Reynolds / B&W Combination
Slide 31: Proven record capturing cost savings
Proven record capturing cost savings 10% 10 20% 30% 40% 50% 2004 2006 2008 2010 2012 2014 3Q16 RAI Adj. Operating Margin 48.5% Reconciliation of GAAP to Adjusted results in Appendix 1 and 2 Results reflected in strong adjusted operating margin improvement Intense focus on efficiency Continuous produ
Slide 32: Excellent total shareholder return
Excellent total shareholder return Outpacing S&P 500 over the long term 1-Year 3-Year 5-Year 10-Year Since 2004 Through Dec. 31, 2016 Source: Bloomberg S&P 500 RAI 26% 11 151% 238% 488% 1,107%
Slide 33: Transaction review
Transaction review Andrew Gilchrist CFO
Slide 34: Transaction details
Transaction details 13 Key offer terms RAI shareholders will receive US$29.44 in cash and BAT American Depositary Shares, representing 0.5260 of a BAT ordinary share, per RAI share Values each RAI share at approximately $59.64 Represents a premium of 26.4% to the RAI closing price on October 20, 201
Slide 35: Transaction delivers significant value to RAI shareholders
Transaction delivers significant value to RAI shareholders Premium to reference RAI share prices Offer represents a premium of 26.4% to the RAI closing price on October 20, 2016 Compares favorably to control premiums paid in benchmark transactions where acquirer already owned between 30 - 49% of tar
Slide 36: Timeline
Timeline SEC process expected to take 4 to 5 months BAT plc will become a registrant and a reporting company under the US securities laws as part of the transaction. NYSE-listed Level III ADSs representing BAT ordinary shares will be issued to RAI shareholders as part of the deal consideration. RAI
Slide 37: Compelling Strategic and Financial Rationale
Compelling Strategic and Financial Rationale 16 Strategic Rationale Compelling growth potential in a stronger, truly global tobacco company Continued significant exposure to the attractive, growing and profitable US market Additional exposure to leading positions in high growth emerging markets Dist
Slide 38: Business & brand highlights
Business & brand highlights Debra Crew President and CEO
Slide 39: Opportunities in U.S. tobacco market
Opportunities in U.S. tobacco market Stable macroeconomic environment Manageable cigarette volume declines Attractive and profitable cigarette market Growth in moist-snuff volumes Interest in non-cigarette alternatives remains strong
Slide 40: RAI companies are well-positioned
RAI companies are well-positioned RJReynolds Santa Fe Natural Tobacco Company Est. 1900 American Snuff Co. RAI Innovations Cigarettes Snus Natural American Spirit cigarettes Moist Smokeless Tobacco Vapor NRTs
Slide 41: Range of distinctive brands driving growth
Range of distinctive brands driving growth Cigarettes Moist Snus Vapor HnB NRT
Slide 42: Strongest portfolio dynamics in U.S. industry
Strongest portfolio dynamics in U.S. industry Newport No. 1 menthol cigarette brand; no. 2 cigarette brand Camel No. 3 cigarette brand; leading total-tobacco brand Pall Mall No. 1 value cigarette brand Natural American Spirit Cigarettes No. 1 fastest growing premium cigarette brand Grizzly It’s that
Slide 43: Competitive strengths
Competitive strengths Strong brand portfolio reflects risk continuum Leaders in innovation and new product commercialization Effective and efficient business strategies and operations Superior consumer and trade engagement capabilities High-performing culture drives performance
Slide 44: EPS has more than doubled since 2004
EPS has more than doubled since 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $0.83 $0.69 $2.27 to $2.33(10/19/16) $2.57 GAAP Adjusted Reconciliation of GAAP to Adjusted results in Appendix 1 and 2
Slide 45: Summary
Summary Transaction provides significant premium Appropriately values RAI growth opportunities Expected to close in Q3 2017 Unique opportunity for future growth in combined company Combination Creates the World’s Largest Global Tobacco Company
Slide 46: Q&A
Q&A
Slide 47: Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results
Appendix 1 Reynolds American Inc. Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results (Dollars in Millions, Except Per Share Amounts) (Unaudited) RAI management uses “adjusted” (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and be
Slide 48: Reconciliation of GAAP to Adjusted Operating Income by Segment
Appendix 2 REYNOLDS AMERICAN INC. Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Operating Income by Segment (Dollars in Millions) (Unaudited) The RJR Tobacco segment consists of the primary operations of R.J. Reynolds Tobacco Company, the second-largest tobacco company in the United State
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