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British American Tobacco is planning to merge with its US partner Reynolds in a deal valued at $47bn (£38bn).

BAT wants to buy the 57.8% of Reynolds it does not already own.

The merger would bring together some of the tobacco industry's best-known brands, including Lucky Strike, Rothmans, Dunhill and Camel cigarettes.

BAT has been a shareholder in Reynolds since 2004 and the company said the merger was "the logical progression in our relationship".

The FTSE 100 company is offering $20bn in cash and $27bn in shares for the US business. This values Reynolds at $56.50 a share, compared to its closing price of $47.17 on Thursday.

BAT estimates that it can make $400m worth of cost-savings through the merger.

The company has not yet held talks with Reynolds and said the merger would have to be approved by all the US company's independent directors.

This is the biggest foreign deal by a British company in recent years, and flies in the face of the prevailing, post-Brexit wisdom that a weak pound would stop British companies buying foreign rivals.

It also marks a substantial consolidation in the ranks of big tobacco - the kind of consolidation that has just happened in another of the "sin" industries with the merger of the world's two largest brewers, AB InBev and SAB Miller. Analysts have for years thought there could be another big deal to being together the big players in world tobacco, and today it has finally arrived.

There have been no talks between the companies in advance of this morning's offer, but the pair know each other well - and after some haggling over price, it is likely we will see the creation of a new giant player in world tobacco.

BAT has held a significant stake in the company for 12 years after merging its US operations, known as Brown & Williamson, with RJ Reynolds. A new parent company was established at the time, of which BAT owns a 42.2% share.

RJ Reynolds has been operating since 1875 and is the second largest tobacco company in the US after Altria, which owns Philip Morris USA.

Last year, Reynolds completed its $25bn takeover of US rival Lorillard. The combined company was forced to sell off a number of brands, including Kool, Salem and Winston, to satisfy regulators. They were eventually bought by Britain's Imperial Tobacco for $7.1bn.

BAT also released results for the first nine months of the year on Friday which showed that revenue rose by 8.1% on a constant currency basis.

The company said there would be an impact from the fall in sterling against the dollar and that trading remained "challenging" in a number of key markets.