As Japan Tobacco’s sole adviser, the US investment bank will get total credit on the deal, giving it a leg-up in the highly coveted M&A league tables. Merrill is expected to net lucrative M&A fees of up to £25 million, according to one banker.

Dresdner Kleinwort, Greenhill and Goldman Sachs, who jointly advised Gallaher, could each net a similar amount.

Japan Tobacco did not disclose how much of its £4.7 billion cash pile it would spend on acquiring Gallaher, but sources said that Merrill could end up lending as much as £5.75 billion, though the bank will syndicate the debt.

Japan Tobacco yesterday formally announced the deal — the biggest tobacco takeover on record — to acquire Gallaher, which makes the Benson & Hedges and Silk Cut brands and is the world’s fifth-largest cigarette maker.

The deal, which is agreed, and in cash, values Gallaher’s equity at £7.5 billion but will see it pay £9.75 billion in total to cover the group’s debt.

The deal helped Merrill to leapfrog Goldman into fourth place in European M&A rankings, behind Morgan Stanley, in first place, and JPMorgan and Citigroup, Dealogic said.

Bankers and lawyers worked through the night on Thursday putting the finishing touches to the deal, which was signed yesterday and announced when the market opened in London.

Hiroshi Kimura, president and chief executive of Japan Tobacco, said that he was “delighted” that Gallaher’s board planned to recommend that shareholders accept the bid, although he did not give details of potential cost savings or the management line-up.

Gallaher’s shares rallied as investors hoped that a rival might counterbid. The stock closed up 3½p to £11.58½ in London, above the £11.40 offer price.

Analysts said it was unlikely that a rival bidder would emerge. Of the contenders, Altria, owner of Marlboro and Philip Morris, and the UK’s Imperial would both have competition issues, while Spain’s Altadis is widely viewed as too small even to consider it.

That left BAT, Gallaher’s larger rival, as the only serious contender, but analysts said it was unlikely that the world’s second-biggest cigarette maker would embark on a costly M&A battle, given its bid would be complicated by divestitures.

Instead, analysts said it was more likely that BAT would consider a bid for Altadis or Imperial, both of whose shares have risen in recent weeks on consolidation hopes.

Mr Kimura said that the limited overlap between Japan Tobacco and Gallaher meant that major job cuts were unnecessary. However, he planned to relocate Gallaher’s headquarters to Geneva and fold them into JT International’s existing management structure. The acquisition is expected to close in the second quarter of next year.

If successful, Japan Tobacco will have an 11 per cent share of the global cigarette market and cement its position behind Altria of the US and BAT as the world’s third-largest tobacco company.

The bid for Gallaher has been long coming. Rumours that either BAT or Japan Tobacco would make an approach have circulated since Imperial Tobacco bought Reemstma, the German cigarette group which owns the upmarket Peter Styvesant brand, for £2.1 billion in 2001. After that successful deal, the pressure mounted on Gallaher, which is number two by market share in the UK, to do a deal.

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