Fitch: British American Tobacco on watch

Fitch Ratings said it placed British American Tobacco plc's long-term issuer default rating of A- and senior unsecured ratings of A- on Rating Watch negative following news of its proposed merger with Reynolds American Inc.

Also on watch includes British American Tobacco’s short-term issuer default rating at F2, along with B.A.T. International Finance’s senior unsecured long-term rating of A-, senior unsecured short-term rating of F2 and B.A.T. Netherlands Finance BV’s senior unsecured long-term rating of A-.

The negative watch reflects the likely material balance sheet re-leveraging of the company should its plans to launch a formal offer to merge with Reynolds American is successful, Fitch explained.

The transaction, however, would enhance British American Tobacco’s geographic diversification by giving it full exposure to the very large and profitable U.S. tobacco market, the agency said.

It also creates scope for cost and product-development synergies from the integration of two companies that share the same brands but are run separately, Fitch added.

Reynold's board has yet to respond to the proposal, the agency said.

The ratings are likely to be downgraded by up to two notches upon a successful completion of the merger, Fitch said, or affirmed if the transaction fails to complete.

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