...Rating Watch Negative: British American Tobacco (BAT) was placed on Rating Watch Negative (RWN) following the announcement of its intention to acquire the 58% it does not own in its associate Reynolds American Inc. (RAI) (BBB/RWP) for GBP16.6bn cash and an equity component. RAI rejected the takeover offer in mid-November, as it is seeking a higher price. Fitch Ratings expects BAT to slightly revise the offer. However, no additional information has been made available as of mid-December 2016, and our analysis is based on the terms of the initial offer. Leverage Increase: Based on the current terms of the proposal, BAT plans to finance the acquisition price by offering cash of USD20bn (GBP16.6bn) and a large equity component for approximately 60% of the total price. We calculate that BAT's consolidated funds from operations (FFO)-based gross leverage could rise in 2017 on a pro- forma basis to over 6.0x (equating to total debt/consolidated EBITDA of 4.5x in 2017, up from 2015's respectively...
