British American Tobacco (BAT) has announced an agreement to acquire the remaining 57.8% stake in U.S.-based Reynolds American Inc., which will weaken its credit metrics. In our view, BAT is well positioned to complete this strategic $49 billion acquisition by the end of third-quarter 2017. We believe the combination with Reynolds will enhance the group's business profile, increasing its presence in the U.S. and the potential for scale-related margin improvement, with only modest integration risks. We are lowering our long-term rating on BAT to 'BBB+' from 'A-' and removing it from CreditWatch negative, while affirming the 'A-2' short-term rating. The stable outlook reflects our view that BAT will be able to restore credit metrics in line with the 'BBB+' rating
