Philip Morris buys USST?

Seems like that is the question being asked lately but more importantly the questions that folks really should be asking are “What does consolidation in the tobacco industry mean to you?” As a retailer how do you think the consolidation of the cigarette/smokeless/cigar manufacturers will affect your business? If your a wholesaler what are your thoughts? Manufacturers what are your thoughts? What happens if your a manufacturer left out of the consolidation? To all, how do you plan on dealing with consolidation that seems so evident? Who do you think buys who? What leverage do you have as a retailer? Folks are talking about this but what are your thoughts?


#1 Patriot on 02.21.08 at 1:15 AM

I have been looking at the most recent contracts and I have to think that the future of the industry will never be the same. I notice that PM requires wholesalers to report their OTP volumes to them along with their cigarette volume. Reynolds wants retailers to stay vertical so the new message can be declared. I for one am not looking forward to PM having control over my OTP business. I have spent a lot of time working with true partners like Conwood/RJR & USST that have helped me grow double digit growth for the last 5 years! I can just see it now no counter displays, no floor displays and put behind closed doors or you run the risk of not getting our discount. I’m wondering if the real reason PM is attaching such high discounting is because in reality the Marlboro brand is not what it once was in the past! I know if I could have the manufacturers not interfer with my business I’d grow it a lot quicker and easier! I can see it now a PM moist header with a row of moist and then a flip sign over a row of Black & Mild to clog up a 2 ft section but demanding 50% of the space.

#2 Cig Guy on 02.26.08 at 10:32 PM

It seems like the industry is full of excitement as I heard today that LVB is now getting into the SNUS business. Looks like folks are realizing that pouches will sell. Been telling folks in Virginia it would sell. Just need to get out there and do it!

#3 Patriot on 03.04.08 at 1:10 AM

Anyone think that Imperial has their eyes on the Carolina Group?

#4 Walter Raleigh on 03.08.08 at 1:02 AM

I’d think that JTI would have an interest in the Lorillard Group.

#5 John Rolfe on 04.03.08 at 1:15 PM

Now that PMI and Altria are separate companies, what prevents PMI from going after a US company like Lorillard without having to divest anything? Or what prevents Altria from going after a company in a foreign market where PMI has a dominant share? Maybe the continued refrain of “leveraging the balance sheet” is really about getting out from under the anti-trust constraints.

#6 Johnie Jay on 04.03.08 at 11:14 PM

At what level would PM if they purchased another company like Lorillard be considered anti-trust? Would a 60+ share be an issue? Would they sell off other brands to get Newport in their fold? Not sure I understand how this works.

#7 Walter Raleigh on 04.11.08 at 12:25 AM

I think it makes sense for PM to buy USST. They would be able to leverage tobacco space via contractural requirements which would help premium products regain a stronger position. If PM had the USST brands they could move quickly to this position. PM would most likely clean up some of the excess at USST. Program implementation would definitely improve the USST portfolio of brands.

#8 CIG GUY on 04.16.08 at 12:32 AM

In looking at a lot of the pricing out in the industry over the last couple of weeks it’s very apparent that PM is going to control the industry. In order to be top dog it would seem that a purchase in in the cards in the future for PM to capture the USST line before it is a sub 50 share company. Sooner rather than latter. I am seeing a decline for the first time in USST premium in the last quarter. Gas pricing and tough cash flow seem to be moving folks still to the lower tiers.

#9 TAZ on 05.22.08 at 3:13 PM

For those interested in PM strategy in Georgia. Here is a picture from Georgia.
Georgia Marlboro POS sign

#10 Johnie Jay on 05.23.08 at 12:52 AM

Wow – I thought Marlboro was launched as Premium product. Pretty cheap! Is the product selling?

#11 Copenhagen Charlie on 05.31.08 at 10:04 AM

Been a user for a long time and posting a $1.00 price point tells me one thing – THERE AIN’T NO WAY THE PRODUCT COULD MATCH UP TO THE CLASSIC GOOD OLE CAN OF COPENHAGEN! The Copenhagen cowboy sure beats out the Marlboro cowboy!

#12 CIG GUY on 06.10.08 at 9:36 PM

Can someone explain the difference of fermentation vs homogenization of moist tobacco?

#13 IRON CITY SMOKER on 08.01.08 at 12:18 AM

All you USST folks you should read the letter on the PM buys John Middleton post. Wow seems pretty frightening if you ask me.

#14 The OTP Kid on 09.05.08 at 1:07 PM

Word on the street is that the purchase will be announced later today, probably after the markets close.

#15 Copenhagen Charlie on 09.05.08 at 2:31 PM

Seems like it will happen especially since there is a real number attached this time!

#16 John Rolfe on 09.06.08 at 12:12 PM

But clearly since Altria denied the rumor after the markets closed Friday, the $10 billion may be a bit stiff even for them. It will be interesting to see where UST’s stock goes when the markets open Monday morning and whether there are any other potential suitors with cash in this range.

#17 Copenhagen Charlie on 09.06.08 at 12:21 PM

I agree but the interesting issue is why did USST pull out of the conference on Thursday? Maybe they are shopping and did not want to discuss the softness of their recent business or the negotiations.

#18 koolkat on 09.07.08 at 8:56 PM

Inevitable proposition especially since cigarette volume continues to decline and their moist marlboro has not performed very well. Plus one must realize there are others that would have interest in USST. PM can use their contract levels to make it tough on all the other players in the moist tobacco space.

#19 TAZ on 09.08.08 at 8:39 AM

RICHMOND, Va. — As expected, Altria Group Inc. and UST Inc.
officially announced today that they have entered into a definitive agreement for Altria to acquire all outstanding shares of moist smokeless tobacco (MST) manufacturer UST. The transaction is valued at approximately $11.7 billion, which includes the assumption of approximately $1.3 billion of debt.

UST provides Altria with the Copenhagen and Skoal brands in the MST category. It will also acquire Ste. Michelle Wine Estates.

The transaction is subject to UST shareholder approval and customary regulatory approvals. The UST acquisition is expected to grow and diversify Altria’s operating income and net revenues.

Under the terms of the agreement, UST will become a wholly owned subsidiary of Altria. Following the completion of the transaction, Murray S. Kessler, chairman and CEO of UST, will be named vice chair of Altria, reporting directly to Michael E.
Szymanczyk, chairman and CEO of Altria, and will oversee the integration.

New York City-based Altria is the parent company of Richmond, Va.-based Philip Morris USA Inc. The brand portfolio of Altria’s tobacco operating companies includes brand such as Marlboro, Parliament, Virginia Slims, Basic and Black & Mild.

Stamford, Conn.-based UST Inc. is a holding company for its principal subsidiaries U.S. Smokeless Tobacco Co. and Ste.
Michelle Wine Estates. U.S. Smokeless Tobacco produces and markets MST 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.

#20 Big Tuna on 09.10.08 at 8:32 PM

It’s with much sadness that I see this transaction occur as the sales folks from USST are just real down to earth great people. They are just great to work with and one of the joys of my job working in the retail industry has always been highlighted by the relationships with “real” people from USST. The moist tobacco industry will dramatically change as the PM persona which is very different will take the enjoyment out of the business. It’s a shame that the folks at USST will most likely be treated like the fine folks at Middleton. To all the great folks at USST I am sad as your energy & enthusiasm will be greatly missed.

#21 Bluesinger on 09.10.08 at 10:13 PM

Did I miss something, or did this all read like a repeat of what happened 9 months ago with the ‘takeover’ of Middleton, and look what is happening to them: dismissal of the sales force followed by the dismissal of some office personnel (duplicate synergies) I believe was the phrase. USST people, hope that you and your customers do not get treated as Middleton and its customers are. I should say that this is what I have heard recently.

Ok, I don’t know all the legal stuff but in reading everything about Altria and how they are buying a manufacturer in all the various tobacco products, how can one company legally do what appears to be, interfering/controlling what and how much a customer buys which essentially controls customers’ growth or decline. Also, at what point is a company considered to have too big a share of a particular market ? Wouldn’t that be a monoply which is what caused the break up of Bell-tel and AT&T years ago? Just curious.

#22 The OTP Kid on 10.20.08 at 4:43 PM

The Feds approved the merger in principle and the aquisition will take place. Listen, once you support FDA, you are free to do a lot of things. Next up, the Feds will support NACS position on reduction of credit card interchange fees. Take that to the bank! (pun intended)

#23 John Rolfe on 10.20.08 at 6:21 PM

The FTC does not define the industry for anti-trust reasons in terms of shelf or counter space, only in terms of distinct product categories e.g., smokeless vs. cigarettes. With virtually no presence in smokeless, Altria is free to do what it did with no presence in machine-made cigars. How products are sold through distribution and retail has historically not figured in a determinant of antitrust issues – just market-share imposed limits by category at both the Federal and State levels.

You are, however, raising a potentially important issue going forward: since manufacturers will be further encouraging consumers of different categories to switch (principally cigarettes to smokeless) and products like NRT are blurring with orbs, sticks and strips etc. the relevant comparison and distinctions might be more appropriately related to nicotine delivery and not to tobacco products. This could change the anti-trust issue.

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