Altria shows that where there’s smoke… – | FT Alphaville

Altria shows that where there’s smoke… –

First, we saw camera makers abandon film and opt for film-less cameras. Now, the trend for ambitious cigarette companies is to abandon smoke. Well, sort of – at least at Altria Group, the largest US cigarette maker, where the philosophy seems to be, “if you can’t beat’em, join’em”.

The group is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, among the few tobacco products to enjoy growing sales in recent years, for more than $10bn, according to the New York Times on Friday.

As Barron’s notes in its “stocks to watch” column, the smokeless tobacco products maker has been the subject of myriad rumours that it might be in the cross-hairs of a bigger tobacco player – Altria being the name that has come up most frequently – with ambitions to expand beyond the traditional cigarette business.

UST effectively fanned the flames Thursday by abruptly canceling a scheduled appearance at a Lehman Brothers conference on consumer companies, Barron’s added. UST said the executives expected to make the presentation, including CEO Murray Kessler, had a ‘’scheduling conflict,” and then declined to elaborate.

UST shares were up as much as 6 per cent on Thursday, before dropping back to close four cents lower at $54. Altria, meanwhile, fell 60 cents to $20.66.

This might mean that Altria’s investors like their smoke. Or, as the NYT points out, that talks between the two companies are at a “delicate state and could still fall apart”.

The deal, if it proceeds, would be Altria’s first major purchase since the company split in March, with the overseas tobacco becoming Philip Morris International and Philip Morris “USA” becoming Altria.
UST also owns Ste Michelle Wine Estates, one of the 10 largest producers of premium wines in the US, and has a market cap of $8bn. Last year it earned $520m on revenue of $1.95bn.

Analysts have long been bullish on the deal, says the NYT, because of Altria’s weak position in the growing smokeless tobacco market and because huge cost savings are possible by eliminating redundancies between the two companies. Both have extensive marketing and distribution operations that cater to essentially the same stores.