Jim Armitage: BAT mega-deal is because of UK flight, so put away Union Jack

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You could hear the nation’s eurosceptics cheering into their cornflakes as news of Friday’s mega-deal broke. Three cheers for Blighty spirit, they roared, waving their union jack tea mugs.

Misery-guts Remainers said takeover traffic would be all one way as foreign giants snapped up our weakened English gems. Now, here’s British American Tobacco —get that? “British” — socking it to the yanks with a £38 billion takeover. Proof that Brexit makes British bulldogs stronger. 

But just how British is BAT really? Run by a Brazilian, it has had little UK presence for decades, while Americans, with 40% of the stock, own twice as many shares as Brits. 

Like much of the FTSE 100, it is British only in name, a bystander to the real economic effects of Brexit.

That aside, there is a Brexit angle to this story.

Thanks to BAT’s entirely foreign business, investors fleeing exposure to the UK have piled into its shares since the referendum. 

As a result, after years trailing its US tobacco peers, BAT is finally on a similar valuation to them. Hence it now has the muscle to strike for RJ Reynolds.

Is RJR the right target? Yes. It is on an upward curve, reaping the benefits of a big acquisition last year.

The duo will be able to combine their R&D on vaping, and, most crucially, BAT will fully return to the US, the world’s most profitable market for tobacco. 

Not only that, but BAT already knows RJR intimately, meaning there’s little risk in the deal going bad.

All in all, at the right price, it’s a no-brainer.  Just don’t hail it as a victory for Brexit Britain.

Also, at last, a break for poor old Deutsche Bank. There have been few reasons to smile at its London offices of late, so raise a stein to Deutsche lifer Nigel Meek and his team for getting on the juicy BAT deal ticket. Prost!

Source Article from http://www.standard.co.uk/business/jim-armitage-bat-megadeal-is-because-of-uk-flight-so-put-away-union-jack-a3375486.html

October 21, 2016 |
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