Thursday, cigarette maker Altria Group, Inc. (MO) said it agreed to acquire John Middleton, Inc., a leading manufacturer of machine-made large cigars, from privately held Bradford Holdings for $2.9 billion in cash. Through this deal, Altria extends its U.S. tobacco business into the growing cigar category. Also, the acquisition would lessen its dependence on top-selling Marlboro cigarettes. Excluding about $700 million in tax benefits, the net cost of the acquisition is $2.2 billion.The deal comes as Altria is planning to spin off its Philip Morris International division. The board is expected to announce the exact timing of the spin-off on January 30. According to analysts, the split would free the international unit to more aggressively pursue sales in emerging markets without the legal and regulatory constraints the U.S. unit faces. Since 1999, Altria's US arm Philip Morris USA is in the midst of legal clash with Department of Justice, or DoJ.Since 1981, cigarette consumption in U.S. has dropped steadily as more bans on smoking in public places are put in place, health messages against cigarettes become more prevalent, and cigarette makers face marketing limitations from the 1998 tobacco litigation settlement with the states. Adding to the woes, Philip Morris USA and its rival R.J. Reynolds Tobacco Company (RAI) separately filed papers in August with the state Elections Division to form political action committees to fight Measure 50, slated to appear on the November 6 ballot. Measure 50 would amend the state constitution to increase the state tax on cigarettes to 84.5 cents a pack, raising the state tobacco tax to $2.02 a pack beginning January 1.Commenting on the deal, Michael Szymanczyk, CEO of Philip Morris USA, or PM USA, said, The acquisition is both strategically compelling and financially attractive. It fits squarely with our announced strategy to grow our U.S. tobacco business beyond cigarettes and complements our recent initiatives in the smokeless category.The New York-based Altria, the owner of famous brands including Marlboro, L&M, Parliament and Virginia Slims, has already been test-marketing different forms of smokeless tobacco as it looks for growth areas.Operating revenues of John Middleton, the maker of Black & Mild cigars, are projected to reach $360 million in 2007, with operating income estimated at $182 million. Over the 2003 to 2007 period, operating revenues and operating income are estimated to have grown at compound annual rates of about 10% and 13%, respectively, driven by the strength of the Black & Mild cigar brand franchise. In 2007, total company cigar volume is expected to reach a level of 1.2 billion units.The acquisition, which would be financed with existing cash, is expected to be modestly accretive to Altria's 2008 earnings and generate an attractive double-digit economic return.Subject to necessary regulatory approvals, Altria expects the deal to close by year-end 2007. Upon the consummation of the deal, John Middleton will continue to operate from its current facilities in Pennsylvania. Orrin Ridington, Jr., the current President of John Middleton, will continue to lead the company's operations from Limerick, Pennsylvania.As previously planned, the current CEO, Clinton Price, Sr, will retire, but will stay on in an advisory capacity during a transition period.The U.S. cigar market is the world's largest with an estimated total consumption of 10.5 billion units or more than 40% of the world market. It is comprised of three segments, namely, large machine-made, small machine-made and hand-rolled premium cigars.John Middleton participates in the large machine-made cigar segment, which has projected volume of 5.3 billion units in 2007. The segment is estimated to have grown volumes at a compound annual rate of approximately 4% over the 2003 to 2007 period and is highly profitable.Altria recently posted third quarter net income of $2.63 billion, down 8.4% from previous year's income of $2.88 billion, reflecting Kraft spin-off. Earnings per share slipped 8.8% to $1.24 per share from $1.36 per share in the same quarter last year.However, net income from continuing operations for the quarter increased 18.9% to $2.63 billion. On a per share basis, earnings from continuing operations rose 18.1% to $1.24. Quarterly net revenues realized by the company improved 8.9% to $19.2 billion.The company's U.S. tobacco business Philip Morris USA or PM USA, recognized a record 50.6% retail market share, up 0.2 points, led by Marlboro, which increased its retail market share 0.5 points to a record 41.1%. Cigarette shipment volume at the company's U.S. tobacco business slipped 1% to 47.1 billion units from 47.6 billion units in the prior year quarter.Philip Morris International or PMI, the company's international tobacco business, generated revenues net of excise taxes were of $5.9 billion, up 9.3% over prior year period. Operating companies income grew 18.8% to $2.5 billion, driven primarily by increased pricing, favorable currency of $138 million and productivity and cost savings. PMI's cigarette shipment volume rose 0.6% to 217.2 billion units from 215.billion in the year-ago quarter.Altria, a Dow component, engages in the manufacture and sale of cigarettes and other tobacco products in the United States and internationally. Altria operates under two main segments namely Philip Morris USA Inc., or PM USA, and Philip Morris International Inc., or PMI. In 2006, the company delivered profit of $12 billion on revenues of $101.4 billion. In January, Altria authorized the spin-off of Kraft Foods Inc. (KFT). Kraft Foods become an independent company in March 2007.Last June, Altria announced plans to optimize worldwide cigarette production by moving U.S.-based cigarette production for non-U.S. markets to PMI facilities in Europe. Due to declining U.S. cigarette volume, as well as PMI's decision to re-source its production, PM USA closed its Cabarrus, NC manufacturing facility and consolidated manufacturing for the U.S. market at its Richmond, VA Manufacturing Center.Shares of Altria, which have a market cap of over $153 billion, are currently trading at $72.73, down 2o cents. During the past 52-weeks, the stock has been trading in the range of $63.13- $90.50.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.