British American Tobacco has agreed to a $49.4 billion takeover of U.S. rival Reynolds American, creating the world’s biggest listed tobacco company after it increased an earlier offer by more than $2 billion.
BAT (bti), which already owned 42% of Reynolds (rai), will pay $29.44 in cash and 0.5260 BAT shares for each Reynolds share, it said, a 26% premium over the price of the stock on Oct. 20, the day before BAT’s first offer was made public.
Reynolds, the maker of Camel and Newport cigarettes, rejected the approach a month later, according to sources, although the two sides remained in talks.
Get Term Sheet, Fortune’s daily email about deals and deal-makers.
The deal, which values the whole of Reynolds at around $86 billion, will mark the return of BAT to the lucrative and highly regulated U.S. market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.
BAT Chief Executive Nicandro Durante said bringing the two companies together would create a market leader with brands including Newport, Lucky Strike, Camel, and Pall Mall.
“It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world,” he said on Tuesday.
Analysts have said the takeover could spark further deals as Philip Morris International (pm) and Japan Tobacco (japaf) jostle for market share in an industry that is shrinking in the West as more people quit smoking.
Durante said the combined group would have the largest global footprint of any tobacco group, with strong positions in both fast-growing emerging markets and lucrative Western countries.
RBC Capital Markets said assuming BAT was able to achieve the annual cost savings of “at least $400 million” it has targeted, the deal would be financially neutral for BAT shares.
“We think (the deal) makes sense strategically and operationally and just about washes its face financially,” it said. “That said, a value-neutral acquisition does little to alter our view that the shares are already reasonably valued.”
Shares in BAT were up 0.4% at 47.80 pounds at 08:55 GMT, about where they were trading in October before the company revealed its initial bid.
Centerview Partners, Deutsche Bank, and UBS advised BAT on the deal, while Lazard, JP Morgan, and Jones Day worked for Reynolds American.