Ball Corp to buy British drinks can maker Rexam for $6.85 bln

* Cash-and-stock deal valued at 628 pence per share

* Anti-trust concerns hold back share price

* Ball to remain U.S. domiciled for tax (Adds more details, analyst and Rexam CEO comments)

By Esha Vaish and Roshni Menon

Feb 19 (Reuters) - U.S. drinks can maker Ball Corp (NYSE: BLL - news) agreed to buy British rival Rexam Plc (LSE: REX.L - news) in a sweetened 4.43 billion pounds ($6.85 billion) deal, creating an industry giant that can better manage capital spending and costs as aluminium premiums rise.

The cash-and-stock deal would combine the world's two largest beverage can makers by volume, making the combined entity the go-to supplier for many customers looking at single contracts across markets.

Can makers are contending with record-high aluminium premiums and the cost of getting the metal out of storage is expected to peak again by mid-2015.

Shares (Frankfurt: DI6.F - news) in Rexam, which makes cans for Coca-Cola Co and Anheuser-Busch InBev, rose more than 6 percent to 571.5 pence in early trading before falling back, and were significantly below the indicated price of 628 pence per share.

The offer was at a 17 percent premium to Rexam's Wednesday close. Ball's shares closed at $77.16 on Wednesday. Analysts said the offer was fair given the challenges in the packaging industry, but antitrust concerns were holding shares back.

"As there are so many regulatory approvals required for such a merger to go through I think the market is discounting the probability of it happening. I think they're going to have to do a lot of asset disposals, it's not a simple merger in that sense," Thomas Picherit of independent research firm AlphaValue told Reuters.

Together, the companies account for 60 percent of the beverage can supply in North America, 69 percent in Europe and 74 percent in Brazil, according to Morningstar (NasdaqGS: MORN - news) analysts.

However, Rexam Chief Executive Graham Chipchase brushed aside any significant regulatory hurdles.

"If you look at the two businesses combined, there's a very complementary footprint. We're very strong in places like Russia and northern Europe, so there's not as much overlap as you might think," Chipchase said on a media call.

Ball Corp said in a statement that the deal would result in synergies of $300 million by 2018. The Broomfield, Colorado-based company added that it expected to get necessary clearances in the first half of 2016.

Ball Corp has retained Axinn, Veltrop and Harkrider as lead antitrust advisors on the deal.

Rexam and Ball each control slightly more than a fifth of the global market. Their nearest competitor, Crown Holdings Inc (NYSE: CCK - news) , has a 19 percent share, according to Vertical Research Partners (Other OTC: PGPHF - news) .

DEAL DYNAMICS

Rexam said its shareholders would get 407 pence in cash and 0.04568 new Ball shares for each Rexam share held, amounting to 628 pence per share.

Rexam said it had negotiated a break fee of 7 percent of the deal value, or about 300 million pounds, if the deal fell through due to antitrust issues.

Ball Corp said in a statement it was acquiring Rexam through Ball UK Acquisition Ltd, its wholly owned subsidiary, in a deal valuing the British company at $8.4 billion including debt.

Upon closing of the deal, Rexam shareholders would own about 19 percent of Ball's shares. The deal was expected to add to Ball's earnings within the first full year of completion.

Greenhill, Deutsche Bank AG (LSE: 0H7D.L - news) and Goldman Sachs (NYSE: GS-PB - news) were financial advisers to Ball Corp. Rothschild, Barclays (LSE: BARC.L - news) , Credit Suisse (LSE: 0QP5.L - news) and Merrill Lynch International were Rexam's financial advisers.

Ball said it would remain domiciled in the United States, shunning the tax inversion deals model that was in vogue last year, after some big U.S. companies bought out UK-listed firms to try and lower their corporate tax payments. (Editing by Gopakumar Warrier; Editing by Jon Boyle)