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Altria may buy UST
Move could give it quick access to smokeless sales
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Published: September 6, 2008
NEW YORK
Altria Group, which owns Marlboro-maker Philip Morris USA, said yesterday that a report of its impending acquisition of UST was "pure speculation."
Analysts said that the deal makes perfect sense.
The New York Times reported late Thursday that Altria, which owns the nation's biggest cigarette-maker, was in discussions to buy UST for more than $10 billion. An official announcement could come as early as Monday, the report said.
A deal would be in line with Altria's strategy to pursue cigarette alternatives, as the U.S. market for smokes declines. UST Inc. is a market leader in smokeless products, with the Skoal and Copenhagen brands.
A spokesman for Altria Group Inc., David Sutton, declined to say whether the deal was being discussed.
"There's nothing to say," Sutton said. "It's pure speculation from our perspective at this point. As a matter of policy, we don't comment on speculation of this kind."
UST spokesman Tom Fitzgerald declined to comment.
Observers said that the deal would make sense for Altria in the current market.
"There is a logic to the deal," said Matthew Kaufler, a portfolio manager of the $190 million Touchstone Value Opportunities Fund. He said he is confident that the two companies have talked in the past, so any revival of discussions would not be surprising.
Kaufler also said that Altria has had limited success trying to sell Marlboro-branded smokeless products, so the acquisition would help with that.
"In the bigger picture it is clear that Altria see the developed world, and the United States in particular, as a falling total market for traditional, quick-access tobacco/nicotine," said Stephen Pope, the chief global-market strategist with Cantor Fitzgerald Europe.
"Therefore, the need is for Altria to start getting serious about smokeless tobacco and that implies it has some legwork to do if it is to catch up to Reynolds American," Pope said.
He said that buying UST gives it "shelter against the downsizing of the cigarette market."
"In the short term I do not see many defections away from Reynolds brands, as they are well-established," Pope said. "However, with a larger, more skillful owner at the wheel,the products of UST might be offered in a more cost-effective and indeed sophisticated manner.
"So any new approach to the way Copenhagen and Skoal are pitched up market, and Rooster, Red Seal and Husky are sold into lower-income brackets, will have implications to the medium-term revenue of Reynolds," he said.
"Reynolds must have a counteroffensive game plan developed in the last two years."
Since American smokers are buying fewer cigarettes, tobacco companies are forced to look for sales growth from such alternatives as cigars, chewing tobacco and snus -- tea-baglike tobacco pouches popular in Europe.
Shares of Stamford, Conn.-based UST Inc. jumped $13.55, or 25.1 percent, to close at $67.55 yesterday. Shares of Altria rose 29 cents to $20.95.
Altria formally split Philip Morris USA from Philip Morris International in March, and has pursued cigarette alternatives to make up for the stronger sales growth at its overseas sibling. U.S. cigarette consumption has been falling by about 3 percent to 4 percent a year.
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