Monday, evidencing the U.S. tobacco industry consolidation, Altria Group, Inc. (MO) said it has agreed to acquire UST Inc. (UST), the world's leading moist smokeless tobacco maker, for $69.50 per share in cash. The transaction is valued at approximately $11.7 billion, which includes the assumption of about $1.3 billion of debt.
This is Altria's first acquisition, since the spinning off of Philip Morris International (PM) in March. Altria has shown interest in buying UST for a long time to expand into other tobacco products.
UST provides Altria with the leading premium brands, Copenhagen and Skoal, in the highly profitable moist smokeless tobacco, or MST, category. Upon completion of the transaction, Altria said its operating companies will offer adult tobacco consumers a diverse range of superior premium tobacco products with strong brands including Marlboro, Copenhagen, Skoal and Black & Mild.
Commenting on the deal, Michael Szymanczyk, chief executive officer of Altria, said, "The combination of Altria and UST creates the premier tobacco company in the United States with leading brands in cigarettes, smokeless tobacco and machine-made large cigars. We are excited about this strategic and financially attractive acquisition as it will enhance our ability to deliver superior shareholder return that is expected to exceed our 12% goal."
Altria expects the acquisition of UST to be accretive to adjusted diluted earnings per share within twelve months of closing and to generate an attractive double-digit economic return.
Further, the UST acquisition is expected to grow and diversify Altria's operating income and net revenues. For the first half of 2008, reported operating income for Altria and UST was $2.6 billion and $451 million, respectively. If Altria had owned UST since the beginning of 2008, Altria's first half of 2008 net revenues would have increased 10.3% to $10.4 billion.
In addition, the merger is anticipated to generate approximately $250 million in annual synergies by 2011, primarily driven by reduced selling, general and administrative and corporate expenses.
However, Altria still expects its 2008 adjusted earnings from continuing operations in the range of $1.63 - $1.67. This range represents a 9% - 11% growth rate from an adjusted base of $1.50 per share in 2007. Analysts, on average, polled by First Call/Thomson Financial expect earnings of $1.67 per share for the year.
Following the completion of the transaction, UST's chief executive officer, Murray Kessler, will be named Vice Chair of Altria, reporting directly to Szymanczyk, and will oversee the integration.
Related to this deal, Goldman Sachs & Co., Centerview Partners and J. P. Morgan acted as financial advisors to Altria. Hunton & Williams LLP acted as corporate counsel, Arnold & Porter LLP acted as regulatory counsel and Sutherland Asbill & Brennan LLP acted as tax counsel.
UST's financial advisor was Citigroup, while Skadden, Arps, Slate, Meagher & Flom LLP acted as lead legal counsel to UST. Perella Weinberg Partners LP acted as lead financial advisor and Sullivan & Cromwell LLP acted as lead legal counsel to UST's Board of Directors.
Shares of Altria ended Friday's regular trading session at $20.95, while shares of UST closed Friday's trading at $67.55.
For comments and feedback: editorial@rttnews.com