This will enable the global tobacco group to maintain its 42 per cent equity position in the enlarged business.
“We believe this is a good investment for our shareholders. We fully support the proposed deal which maintains our position in what will be a larger, more competitive business,” [DATA BTI:BAT] chief executive, Nicandro Durante said.
BAT will be subscribing for new shares in Reynolds American with funding from existing resources and debt and its investment is contingent upon the completion of Reynolds American's acquisition of Lorillard.
The company will also be suspending its 1.5 billion pound share buyback programme with effect from 30 July 2014.
(READ MORE: BAT grows revenue amidst enhanced 2013 strategy)
“The transaction, which is anticipated to be completed in the first half of 2015, is expected to be mildly accretive for BAT,” it said.
According to BAT, it has also agreed, in principle, with Reynolds American to expand its existing cooperation to encompass the research, development, innovation, intellectual property and commercialisation of each other's next-generation vapour and heat-not-burn tobacco products.
“This strategic partnership will combine the experience and expertise of both companies to produce a world-class pipeline of next-generation products with global reach, better suited to meeting the emerging requirements of today’s smokers,” Durante said.
The proposed acquisition of Lorillard is subject to a number of regulatory approvals in the USA as well as the approval of other parties’ shareholders.