Sell Reynolds American (RAI).
Reynolds American (RAI) received a $56.50 per share takeover offer from British American Tobacco this morning. The price represents a 20% premium to RAI’s closing price yesterday. The stock opened at 56 this morning and is now trading around 53.50.
U.K.-based British American Tobacco already owns 42% of Reynolds, and the companies mostly operate in different markets, so the deal shouldn’t face as much regulator scrutiny as Reynolds’ takeover of Lorillard last year. Still, the $47 billion merger would create the world’s largest publicly-traded tobacco company, so it won’t be approved overnight.
If you want to hold for a price closer to the takeover price, you could put in a sell order around 56.50 now. However, we’ll keep things simple and sell at today’s average price, both because the takeover could drag on and because we were already on the verge of selling our RAI earlier this week. The stock has been technically weak for months, partially due to a rotation out of defensive names and partially due to slowing sales growth.
We’ve owned RAI since July 2014, so we’ll book a profit of about 77% on the sale.