BAT shares climb as merger gets white smoke

Shares in British American Tobacco leapt forward today after regulators removed a major hurdle to a merger involving the company’s US operation.

The group, whose brands include Kent, Dunhill and Lucky Strike, discovered last night that its plan to combine its US subsidiary Brown & Williamson with larger rival RJ Reynolds was acceptable to the US Federal Trade Commission.

The unanimous support of Commission members caused shares to rise 6% as investors expressed relief at an answer to tough trading conditions in the US.

The merger – due to be completed by the end of July – creates a bigger rival to market leader Philip Morris, holding around 30% of the sector and bringing together the second and third largest tobacco companies in the US.

BAT chairman Martin Broughton said he was delighted that the uncertainty over the planned merger was now over.

His company will now have a 42% share in a newly created company that Mr Broughton predicted would be a “stronger and more sustainable business”.

The importance of the deal was shown in February by a fall in annual profits at B&W – down 27% – as the US industry continues to experience competitive pricing.