Magazine article Global Finance

Reynolds American Borrows for Takeover

Magazine article Global Finance

Reynolds American Borrows for Takeover

Article excerpt

Winston-Saleni, North Carolina-based Reynolds American, the parent company of RJ. Reynolds Tobacco, borrowed $1.65 billion in the high-yield debt market to help finance the purchase of Conwood, the second-largest manufacturer of smokeless tobacco products in the United States.

In a three-part offering of senior secured notes in the private-placement market, cigarette maker Reynolds American offered $625 million due in 2013, $775 million due in 2016 and $250 million due in 2018. Lehman Brothers, JPMorgan securities and Citigroup Global Markets were the initial purchasers of the notes.

Reynolds American last month completed the $3.5 billion purchase of the holding company that owns Memphis, Tennessee-based Conwood. It funded the acquisition with proceeds of the debt issue and loans under its $1.55 billion senior secured term loan facility and available cash. The company also entered a $550 million revolving credit facility. Reynolds American will combine its Lane Limited specialty tobacco products unit, currently based in Tucker, Georgia, with Con wood in Memphis.

Analysts say Reynolds American paid a steep price for Conwood, which had 2005 operating income of $250 million on sales of more than $450 million, but that the smokeless tobacco business is growing faster than the cigarette business.

"Conwood's strong, wellpositioned brands are gaining share in the growing moist-snuff market, and its high margins will enhance our ability to continue to provide an excellent return to our shareholders," Susan Ivey, Reynolds American's chairman and CEO, said in a statement. …

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