Reynolds American, the second-largest cigarette seller in the US, is seeking a higher price from British American Tobacco after rejecting a $47bn buyout offer as too low, according to people familiar with the matter.

The tobacco giants are in talks and BAT is willing to increase the price slightly, said the people, who asked not to be named because the details aren’t public. BAT, which already owns 42 per cent of Reynolds, disclosed its proposal to acquire the rest of the company on 21 October.

Spokespeople for BAT and Reynolds declined to comment.

The transaction would let BAT overtake Philip Morris International as the world’s largest publicly traded tobacco business. It also would give the London-based company a strong foothold in the US and access to Reynolds’s leading electronic-cigarette position. China National Tobacco Corp., run by China’s State Tobacco Monopoly Administration, is the biggest tobacco company overall.

BAT’s unsolicited cash-and-stock offer of $56.50 a share represented about a 20 per cent premium to Reynolds’s closing price the previous day. But BAT only plans to pursue the deal with Reynolds’ support. Ten days after the offer was announced, Reynolds created a transaction committee to consider the proposal.

The offer is the latest in a run of tobacco mergers, as companies facing smoking declines around the world seek to increase market share and create alternatives to traditional cigarettes. Reynolds completed its $25.9bn acquisition of Lorillard Inc. in June 2015.

BAT has owned its current stake in Reynolds since the Winston-Salem, North Carolina-based company was created in 2004. It helped to fund Reynolds’s takeover of Lorillard, which helped BAT maintain its 42 per cent stake in the Camel maker. The companies already work together on vapor products. BAT estimated the transaction would create cost synergies of about $400m.

BAT Chief Executive Officer Nicandro Durante wrote in the offer letter that he would have preferred to propose the takeover confidentially, but US securities law would have required the company to amend its regulatory findings. Reynolds directors who were not appointed by BAT must back the bid in order for it to move forward, he said.