British American Tobacco yesterday agreed to take over Rothmans International in a £5.28 billion deal that will take the combined group close behind Philip Morris, market leader in the international cigarette market.

BAT and Rothmans occupy respectively second and fourth largest positions among international cigarette companies. The new group, including brands such as State Express, Kent, Rothmans and Dunhill, will be selling more than 900 billion cigarettes a year and will have 16 per cent of the world market compared with the 17 per cent of Philip Morris, maker of Marlboro.

Tobacco industry analysts were surprised by the news because both BAT, which is being advised by Lazard Brothers and Goldman Sachs, and Rothmans had been considered prime candidates for negotiations with RJR Nabisco after speculation that the US group was considering selling or spinning off its overseas tobacco business, R.J. Reynolds International.

After completion, Richemont and Rembrandt, the twin vehicles of the Rupert family that owned Rothmans, will hold 35 per cent of the enlarged group, with 25 per cent of the ordinary shares and a further 10 per cent in convertible preference shares. Richemont is being advised by Warburg Dillon Read and Rembrandt is being advised by S.G. Hambros.

Shares in BAT jumped 84p to close at 625p yesterday. Based on that price the all-paper deal implies a market value for the new group of £15.1 billion.