Altria Group, Inc. Agrees to Acquire UST Inc., World's Leading Moist Smokeless Tobacco Manufacturer, for $69.50 per Share in Cash |
- Creates a total tobacco platform with superior premium tobacco
brands that includes Marlboro, Copenhagen, Skoal and Black &
Mild
- Accretive to adjusted diluted earnings per share within twelve
months of closing
- Generates estimated annual synergies of $250 million by 2011
- Diversifies Altria's revenues and operating income
RICHMOND, Va.--(BUSINESS WIRE)--Sept. 8, 2008--Regulatory News:
Altria Group, Inc. (Altria) (NYSE: MO) and UST Inc. (UST) (NYSE:
UST) today announced that they have entered into a definitive
agreement for Altria to acquire all outstanding shares of UST, the
world's leading moist smokeless tobacco (MST) manufacturer. Under the
terms of the agreement, shareholders of UST will receive $69.50 in
cash for each share of common stock held. The transaction is valued at
approximately $11.7 billion, which includes the assumption of
approximately $1.3 billion of debt.
"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," said Michael E.
Szymanczyk, Chairman and Chief Executive Officer of Altria. "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. This transaction is
consistent with our growth strategy of making disciplined investments
in adjacent categories. UST provides Altria with the leading premium
brands, Copenhagen and Skoal, in the highly profitable MST category.
We will also acquire Ste. Michelle Wine Estates, a premium wine
business, as part of the transaction."
Upon completion of the transaction, Altria's 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.
"This all cash transaction delivers compelling value to UST's
shareholders," said Murray S. Kessler, Chairman and Chief Executive
Officer of UST. "UST's growth strategy will clearly be enhanced by
Altria's resources and infrastructure."
Based on UST's three-month average stock price of $53.90, this
offer represents a premium of 28.9% to UST's shareholders.
The transaction is subject to UST shareholder approval and
customary regulatory approvals, which will be pursued promptly. A copy
of the agreement containing all the terms of the transaction is filed
today with the U.S. Securities and Exchange Commission.
The transaction does not change Altria's 2008 guidance for
adjusted full-year diluted earnings per share from continuing
operations, which is expected to be in the range of $1.63 to $1.67.
This range represents a 9% to 11% growth rate from an adjusted base of
$1.50 per share in 2007.
Financial Benefits
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.
The integration is anticipated to generate approximately $250
million in annual synergies by 2011, primarily driven by reduced
selling, general and administrative and corporate expenses. Altria
believes that these estimated synergies will enable the company to
deliver increased shareholder and consumer value.
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 $10.4 billion as shown in Table 1 below.
Table 1 ($ Billions) First-Half 2008: Net Revenues Comparison
----------------------------------------------------------------------
Excluding UST Including UST
----------------------------------------------------------------------
Net % Net %
Revenues Contribution Revenues Contribution
-----------------------------------------------
PM USA $9.15 96.7% $9.15 87.6%
John Middleton Co. $0.19 2.0% $0.19 1.8%
PMCC $0.12 1.3% $0.12 1.2%
UST - - $0.98 9.4%
--------- ------------- --------- -------------
Total $9.46 100% $10.44 100%
----------------------------------------------------------------------
Altria generates approximately $3.5 billion of operating cash flow
per year. After the acquisition Altria expects to generate over $4.0
billion of operating cash flow per year. Altria continues to be
committed to returning a large majority of this cash to Altria
shareholders through a combination of dividends and share repurchases.
Altria anticipates maintaining a dividend payout ratio of
approximately 75% post-transaction. Payments of future dividends will
be at the discretion of the Altria Board of Directors.
In conjunction with the acquisition agreement, Altria has modified
its share repurchase program. The Board of Directors has approved a
three-year (2008 to 2010) $4.0 billion program, replacing a previously
announced two-year $7.5 billion program. This modified program
facilitates financing the UST acquisition. Altria spent approximately
$1.2 billion repurchasing 53.5 million shares of its stock in 2008,
and the company expects to resume purchasing stock against this
modified program in 2009.
Financing
Altria has received new committed bridge financing totaling $7.0
billion from Goldman Sachs & Co. and J. P. Morgan which, together with
its existing credit facilities and cash, is expected to be more than
sufficient to fund the transaction. Altria intends to access the
public-debt market to refinance a portion of its credit facilities. To
help Altria achieve the highest credit ratings on such refinancings,
Philip Morris USA Inc., a wholly-owned subsidiary of Altria, has
issued guarantees for Altria's debt.
Management
Under the terms of the agreement, UST will become a wholly-owned
subsidiary of Altria. Following the completion of the transaction,
Murray S. Kessler will be named Vice Chair of Altria, reporting
directly to Michael E. Szymanczyk, and will oversee the integration.
"I look forward to working closely with Mike and his management team
to integrate our outstanding brands and employees into the Altria
organization," said Mr. Kessler.
"We are pleased that Murray has agreed to stay on board during the
integration period to help complete the transition," said Mr.
Szymanczyk. "U.S. Smokeless Tobacco Company is the leading and most
profitable moist smokeless producer and marketer due to the efforts of
Murray, his management team and employees. They have a deep
understanding of the growing smokeless tobacco category. It is my
pleasure to welcome UST's talented employees to the Altria family of
companies."
Advisors
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.
Citigroup acted as lead financial advisor and 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.
Conference Call Webcast
A conference call hosted by Mr. Szymanczyk and Mr. Kessler with
members of the investment community and news media will be webcast at
9:00 a.m. Eastern Time on Monday, September 8, 2008. Access to the
webcast is available at www.altria.com and www.ustinc.com. An archived
copy of the webcast will be available on Altria's and UST's websites
until October 7, 2008.
Altria Group, Inc. Profile
As of September 8, 2008, Altria owned 100% of each of Philip
Morris USA Inc. (PM USA), John Middleton Co. (Middleton) and Philip
Morris Capital Corporation. In addition, Altria held a 28.5% economic
and voting interest in SABMiller plc.
The brand portfolio of Altria's tobacco operating companies
includes such well-known names as Marlboro, Parliament, Virginia
Slims, Basic and Black & Mild. Trademarks and service marks related to
Altria referenced in this release are the property of, or licensed by,
Altria or its subsidiaries. More information is available about Altria
at www.altria.com.
UST Inc. Profile
UST Inc. is a holding company for its principal subsidiaries: U.S.
Smokeless Tobacco Company and Ste. Michelle Wine Estates. U.S.
Smokeless Tobacco Company is the leading producer and marketer of
moist smokeless tobacco products including Copenhagen, Skoal, Red Seal
and Husky. Ste. Michelle Wine Estates produces and markets premium
wines sold nationally under 20 different labels including Chateau Ste.
Michelle, Columbia Crest, Stag's Leap Wine Cellars and Erath, as well
as exclusively distributes and markets Antinori products in the United
States. Trademarks and service marks related to UST referenced in this
release are the property of, or licensed by, UST or its subsidiaries.
More information is available about UST at www.ustinc.com.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and
other forward-looking statements that involve a number of risks and
uncertainties and are made pursuant to the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this press release include,
without limitation, expectations with respect to the proposed
acquisition of UST. Important factors that may cause actual results
and outcomes to differ materially from those contained in such
forward-looking statements include, without limitation, the parties'
ability to consummate the transaction as expected; the possibility
that one or more of the conditions to the consummation of the
transaction may not be satisfied; the possibility that regulatory
and/or shareholder approvals required for the transaction may not be
obtained in a timely manner, if at all; the parties' ability to meet
expectations regarding the timing, completion, and other matters
relating to the transaction; and any event that could give rise to the
termination of the merger agreement. Other important factors include
the possibility that the expected synergies will not be realized or
will not be realized within the expected time period and the risk that
the integration of UST will not be successful, in each case due to,
among other things, changes in the tobacco industry; prevailing
economic, market, and business conditions affecting the parties; risks
that the transaction disrupts the parties' current plans and
operations; and the other factors detailed in the parties' publicly
filed documents, including their respective Annual Reports on Form
10-K for the year ended December 31, 2007 and their respective
Quarterly Reports on Form 10-Q for the period ended June 30, 2008.
Other factors as well could cause actual results and outcomes to
differ materially from those contained in the projections and
forward-looking statements included in this press release. By way of
example, Altria's tobacco subsidiaries (PM USA and Middleton) as well
as UST's subsidiaries are subject to intense price competition;
changes in consumer preferences and demand for their products;
fluctuations in raw material availability, quality and cost;
fluctuations in levels of customer inventories; the effects of global,
national and local economic and market conditions; changes to income
tax laws; legislation, including actual and potential excise tax
increases; increasing marketing and regulatory restrictions; the
effects of price increases related to excise tax increases and
concluded tobacco litigation settlements on consumption rates and
consumer preferences within price segments; health concerns relating
to the use of tobacco products and exposure to environmental tobacco
smoke; governmental regulation; privately imposed smoking
restrictions; and governmental and grand jury investigations. Their
results are dependent upon their continued ability to promote brand
equity successfully; to anticipate and respond to new consumer trends;
to develop new products and markets and to broaden brand portfolios in
order to compete effectively; and to improve productivity.
Altria's and UST's subsidiaries continue to be subject to
litigation, including risks associated with adverse jury and judicial
determinations, courts reaching conclusions at variance with the
companies' understanding of applicable law and bonding requirements in
the limited number of jurisdictions that do not limit the dollar
amount of appeal bonds.
Altria and UST caution that the foregoing list of important
factors is not complete and do not undertake to update any
forward-looking statements that it may make. All subsequent written
and oral forward-looking statements concerning the proposed
transaction or other matters and attributable to Altria or UST or any
person acting on their behalf are expressly qualified in their
entirety by the cautionary statements referenced above.
Other Information
In connection with the proposed acquisition, UST intends to file
relevant materials with the SEC, including a proxy statement on
Schedule 14A.
INVESTORS AND SHAREHOLDERS ARE URGED TO READ UST'S PROXY STATEMENT
AND ALL RELEVANT DOCUMENTS FILED WITH THE SEC (WHEN THEY BECOME
AVAILABLE) BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION.
Investors and shareholders will be able to obtain the documents
free of charge through the website maintained by the SEC at
www.sec.gov. A free copy of the proxy statement and other relevant
documents, when they become available, also may be obtained from UST
Inc., 6 High Ridge Park, Building A, Stamford, Connecticut 06905-1323,
Attn: Investor Relations. Investors and security holders may access
copies of the documents filed with the U.S. Securities and Exchange
Commission by UST on its website at www.ustinc.com. Such documents are
not currently available.
Altria and UST and their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies from UST's shareholders in connection with the merger.
Information about Altria's directors and executive officers is set
forth in Altria's proxy statement on Schedule 14A filed with the SEC
on April 24, 2008 and Altria's Annual Report on Form 10-K filed on
February 28, 2008. Information about UST's directors and executive
officers is set forth in UST's proxy statement on Schedule 14A filed
with the SEC on March 24, 2008 and UST's Annual Report on Form 10-K
filed on February 22, 2008. Additional information regarding the
interests of participants in the solicitation of proxies in connection
with the merger will be included in the proxy statement that UST
intends to file with the SEC.
Source: Altria Group, Inc.; UST Inc.
CONTACT: Clifford B. Fleet
Altria Client Services, Investor Relations
804-484-8222
Daniel R. Murphy
Altria Client Services, Investor Relations
804-484-8222
Brendan J. McCormick
Altria Client Services, Media Affairs
804-484-8897
Mark A. Rozelle
UST, Investor Relations
203-817-3520
Thomas J. Fitzgerald
UST, Media Relations
203-817-3549
SOURCE: Altria Group, Inc. and UST Inc.
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