The London-headquartered maker of Lucky Strike cigarettes is attempting to buy the 57.8% of Reynolds that it does not already own. In late October it offered $47 billion for the target, with $20 billion in cash and the remaining $27 billion in BAT shares.
Bloomberg news reported late on Monday that the target, which makes Camel and Newport cigarettes, has already rejected the offer as being too low.
British American Tobacco stock was up by 0.3%, to 4,310.0 pence ($53.87), on Tuesday morning in London but is still down by double digit numbers since the announcement in late October.
The rejection is unsurprising. Around 60% of BAT's offer is comprised of shares and the share-exchange ratio for the transaction was set using Oct. 20 closing prices.
Since then BAT's stock price has declined by nearly 12%, from its pre announcement level of 4,800.0 pence, meaning that the consideration due to be received by Reynolds investors is now lower.
But the merger is unlikely to fall at the first hurdle. Strategic benefits, synergies and the fact that BAT already owns 42.2% of the target will encourage BAT to sweeten its offer.
At the moment BAT's largest market is Japan, where it earns around 12.5% of its £13 billion of revenues according to Factset estimates, while it is also heavily reliant on emerging markets including Brazil, Russia and Mexico.