BAT merger deal cheers market

SHARES in British American Tobacco rocketed to their highest this year as London traders welcomed the merger of its US operations with those of rival RJ Reynolds.

While investors in struggling RJ Reynolds pushed its shares up nearly 10% in after-hours trading in New York, BAT stock got off to a flying start, leaping more than 9%, by 60p to 702 1/2p.

A sense of relief at the return of mega-deals was palpable on dealing floors both sides of the Atlantic. News of the deal came hours after the proposed $47bn (£27.7bn) takeover by Bank of America of FleetBoston - a tie-up that raised hopes of an end to the three-year drought in mergers and acquisitions in the US.

As well as the Bank of America merger, two healthcare deals were also announced yesterday, with a total value of almost $20bn.

Speculation was rife of further tobacco consolidation, and Gallaher shares jumped 4% today. The merger brings together the second and third largest tobacco companies in the US, with well-known brands such as Camel, Winston and Salem from RJR and Lucky Strike, Pall Mall and Kool from BAT's Brown & Williamson division. BAT executive chairman Martin Broughton said the deal recognised splits among investors about its exposure to the US, where tobacco companies have faced waves of litigation.

The deal indemnifies BAT from existing and future lawsuits. 'I think it's no secret that our shareholders are fairly polarised on their views of the US market and I think we've come up with a transaction that should make all of the shareholders happy,' he told corporate interviews provider Cantos.

Susan Ivey, recently appointed Brown & Williamson chief executive, will run the new American business as chief executive. She will be one of the FTSE 100's highest paid directors.

She will expect to be paid in line with her peers, particularly at arch-rival Philip Morris. On his succession to the chief executive's role there last year, Louis Camilleri was granted options worth more than $6m and is expected to receive salary and bonuses of a similar order to his predecessor's £3.3m earnings in 2002.

Ivey, an American who started her career at Brown & Williamson in 1981, has won plaudits for her willingness to speak publicly about the health controversies concerning US tobacco groups.

Chairman of the new company will be RJR chairman and chief executive Andrew J Schindler.