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Altria Group Inc. announced on January 6th that it has closed its acquisition of UST Inc., the parent of US Smokeless Tobacco Company, in a $10.4 billion, or $69.50 per share, deal announced in September 2008. Altria will assume $1.3 billion in debt. Altria’s purchase of UST gives it a leading position in the growing smokeless tobacco market. Altria Group CEO Michael Szymanczyk said the integration of UST will position the company well, as domestic cigarette sales are declining by 3-4% annually (AP 1/6).
The long rumored, highly anticipated rumor has come to reality as the acquisition has come to a close. But now a new chapter will be written as the industry in the midst of it’s most severe challenges will watch how this acquisition plays it’s part in the never ending tobacoo saga.
So what does this acquisition mean to the industry? What affect will it have on retail? What about it’s affect on cobsumers? Will it encourage the argument for the the reduction of harm of moist tobacco products? What are your thoughts on how PM will integrate USST into their business? How will it affect product development? Will it affect taxation of moist tobacco products? Will pricing of moist tobacco products be affected by the ever increasing price of a pack of cigarettes? Or will the low end MST products hold pricing in line? So many questions? What do you think? What does this acquisition really mean? What’s the title of the next chapter? |
Altria Closes UST Acquisition – What Does This Mean?
January 9th, 2009 | Acquisitions, Current Issues, General, Retail Cigarette Brand Prices Around the World, Snus, Snuff & Alternative Products in US Markets, Tobacco Harm Reduction | Fuente
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PM will just trash USST as they have done with Middleton. They now have the #1 cigarette, #1 cigar pak, and the top smokeless products. It just increases PM’s power to control retail, wholesale, price, and policy. And of course stomp on the personnel of their acquired companies. It is a dangerous precedent to allow one company such power.
If the FDA were smart, they would use there new regulatory power to open up the retailers for new products. Otherwise, the whole reduced risk concept will prove a total farce thanks to PM.
Yeah what bothers me is here goes another situation where the little guys that run legit business will be hammered by PM to not be in the space!
Let the fun begin with all the contract restrictions is my thought for the day.
Why does anyone sell anything owned by PM? I don’t and I won’t nor RJR for that matter. I loathe those companies. There are plenty of good cigarettes on the market that allow the retailer to make a good margin and not give them a dime. It is a matter of educating your customers, introducing them to new brands that are better smokes and at a better price.
I would much rather give up a sale than contributed to either on of these evil companies.
So what brands do you sell in your location? I’d be very interested in knowing that.
Executives at Altria are fully aware that their newly acquired Skoal and Copenhagen brands are far less hazardous alternatives to cigarettes.
But Altria negotiated and agreed to (with CTFK, Waxman and Kennedy) the FDA tobacco legislation in 2004 that misleads smokers to believe the smokeless tobacco is just as hazardous as cigarettes, and that makes it more difficult to inform smokers that smokefree products are less hazardous alternatives.
But Altria’s anticipated price cuts for Skoal and Copenhagen should encourage more smokers to substitute smokeless, as should the SCHIP legislation (which increases the cigarette tax by $.61/pack, but the smokeless tax by just $.07/can).
I only sell Nat Sherman’s Export A, Sweet Dreams & Djarum. I know there are a lot of NPM’s and coerced PM’s on the market. We are a cigar and pipe tobacco store with only a few cigarettes. I sold American Spirit until RJR bought them, then I discontinued them.
If retailers threw the bums out, we would see an end to the ever increasing taxes and more humble companies working for retailers business again.
We had an article on e-cigarettes in the newspaper yesterday. I did a Google search on them. If those caught it would certainly change things.
Not to worry, Bill and his ilk are out to get them banned here. They won’t get a paycheck without tobacco taxes, right Bill? I think the gravy train may be pulling away from the station.
Per jancascade’s posting, while I’ve been advocating cigarette tax hikes for two decades (and the SCHIP legislation in the past and current Congress), I’ve been the most vocal proponent of nicotine inhalers (aka e-cigarette) and other smokefree tobacco products as less hazardous alternatives to cigarettes.
In response to efforts by CTFK, ACS, ALA, AHA, ADA and GSK since 2001 (and by Philip Morris since 2004 via the FDA legislation) to ban new smokefree tobacco/nicotine products from the market, to mislead the public to believe that smokefree tobacco/nicotine products are as hazardous as cigarettes, and to ban tobacco product manufacturers from truthfully informing smokers that smokefree products are less hazardous alternatives to cigarettes, I’ve been campaigning to allow, inform and encourage smokers to use smokefree tobacco/nicotine products as less hazardous alternatives to cigarettes.
Also, I’ve never received any tobacco tax revenue.
It would be helpful if posters engaged in truthful and courteous discussions instead of false ad hominem accusations.
My inside Intel informs me that 95% of the USST folks are gone!
Gone by 3/15
Icky and OTP Kid, if this is true, PM is doing the same thing as they did with Middleton. Tell ‘em one thing, and then a few weeks later, change their mind, and fire the whole sales force.
Don’t have any facts but logic would dictate that if you already have a sales force calling on the same stores as the company you just purchased the answer is simple. Very unfortunate anybody has to lose a job but today its all about the stock price.
smoker, you are right in sales force calling on same stores. However, PM has a full time sales force calling on retail, USST has a full time sales force calling on retail, and Middleton had a full time sales force calling on wholesalers and chain account headquarters. So, are the PM people expected now to do three full time jobs in the time of one? And you are so correct about today its all about the stock price. That was so nice about Middleton – it was private and no stock price concerns.
Hey
A line of bull. Of course they can do three product lines. When I was beverage guy the coke man showed me carbonated, juice, tea, water, energy, isotonics. Must I say more! Bye Bye USST sales guys. Love you all but give me a break you better get going. Oh by the way all you Conwood guys need to think about your future. If you don’t think the WS group won’t watch the PM machine maximize efficiencies you been drinking the wrong koolaid!
In a letter to the Connecticut Department of Labor, UST Inc., which Altria Group Inc. acquired in a $10.4 billion deal on January 6th, announced plans to lay off 34 employees by March 18th due to the complete closing of its headquarters in Stamford, by the end of 2009. (Stamford Advocate 01/15)
Taz, you are correct that this is the first layoff in a wave of layoffs that will occur during the year. 350 people will be affected when PM totally closes their Stamford operation at the end of 2009. To quote the article, “One result of the acquisition will be more people out of work.” They will transfer some of the people to Richmond and the rest adios, which is exactly the same thing PM is doing with John Middleton.
To Mr Godshall– why always tobacco, why not the liquor and beer industry ?
Anyway– PM is eliminating more jobs at Middleton. The 3rd round of job eliminations are happening at Middleton. More office people have been told, some that were told are now safe, others are still in limbo. As far as transfers to Richmond, I suspect there will very, very few. What may actually be sad is that PM may find out in 3+ years that they made a HUGE mistake with Middleton like they found out with Kraft and decided to spin-off Kraft so that Kraft became a stand alone company like Middleton was told they were going to be. The fear is that by the time that happens, Middleton may no longer be a player that is worth what PM paid for them. The local economy will lose probably the 2nd highest employer, the local political scene will have lost a large group of voters.
What will Gov Rendell say.
I bet the truth is that Mr Bill likes beer and thats why he never attacks that industry. It really makes more sense to tax beer than cigarettes. No one is trying to attack the liquor industry and see it’s demise. I’m hearing that there are still some twists to this legislation. One may actually raise it a bit more and some are also tooking about a staging in the increase. It will be interesting. I think that dental may have been added so they will need even more money.
I think someone correctly discussed the word “synergies”. Historically, that leads to jobs being lost by someone.
So true smoker gal. If you hear the word synergy, you had better start looking for a job. The definition of synergy is fewer employees and more money to the top executives.
Any additional word on the status of the USST sales force?
Sounds like it could be sometime this up coming week for sales force reductions.
Sooner wrote:
“I bet the truth is that Mr Bill likes beer and thats why he never attacks that industry.”
Regardless of my personal tastes (I drink several microbrews daily) beer), I’ve urged the last 3 PA Governors and Legislature to increase PA’s beer excise tax, which has been $.01/pint since 1946 (when the cost of beer averaged $.20). Since beer now costs more than $2, the beer tax rate (as a percenage of price) has declined by 90% since 1946. Unfortunately, no governor has proposed it in their budget, nor have any legislators advocated it.
Also, I advocated a 10% tax on all served alcohol drinks here in Allegheny County, which the County Council approved (by one vote) last year, and which the County Council recently reduced to 7% (as the revenue obtained from last year’s drink tax was significantly more than was projected in the budget).
Bill – Thanks for your clarification. It’s good to see someone advocating a increase in the liquor tax. Pretty interesting though to see it became a surplus rather quickly which is what I guess we are both trying to say. My fear is that folks will attempt to tax alternatives like cigarettes irregardless of their harm level.
I think the OTP Kid is right, look for massive reduction in the sales force ranks at USST. Unfortunately, I believe this will present an interesting dilemna. The employee models for both of these companies are extremely different. Let’s say the PM employee model is an individual that walks a straight line being feed by the powers above to not think just to follow orders with no deviation from the indoctrination. I’m trying to be professional in my assessment. But folks in the industry know what I’m referring too!. The team at USST built their success with a much different model. Real folks that built relationships. And I just have to think that little spitton whether a cup with a paper towel in it or an empty soda bottle will be an acceptable meeting time addition! The question I beg to have answered is how the PM rep will emotionally attach him/her self to a product that for so many years was looked at with disgust! I really feel for the great folks at USST. They surely had a lot of great individuals working that will be looking for new employment!
I’ve proudly worked for UST for 8 years. I’m really upset that our company was sold out! All Sales force are gone! Way to go PM!! Kiss my ass!
Title of next chapter: Watching PM flush all this hard work. Because they know NOTHING about this business. They(PM) quit making their own snuff because it couldn’t top UST. Roger & Copemen you two are soooo right! Retailers aren’t too happy, buyers won’t be to happy if they handle this like their cigarettes ( NO RETURN), & then you have all the unhappy employees ! #9 in the cowboy ethics ??? What a shame! GOODLUCK PM
Can anyone discuss the recent voicemail sent to the sales force announcing their future? I heard this from two of USST’s competitors but wonder if it just over exagerrated!
I work for USST. Things don’t look good. I, however, expected this since I worked for Reynolds for a long time before joining USST. The consolidation of the industry has been long over due. The Republicans were the only ones saving our asses. With them out of power, the industry is in serious trouble. There will be virtually nobody left in the field for any tobacco company once the Democrats eliminate the marketing of tobacco products through FDA regulation. This is especially true at retail. PM reps are not even safe. Tobacco will truly be a commodity before too long, just as PM desires. PM will milk it for all it is worth. The best advice is to get out of tobacco while you can.
I was watching the PBR tonight and it made me wonder about the MSA agreement and tobacco sponorships of events. Will the purchase affecr USST and its sponsorships of the PBR and NHRA?
I believe will. The MSA agreement signed by PM limits sponsorships of sporting events to 1 per year as I recall. I will, however, say that the FDA is likely to ban such sponsorships. This is my prediction. Tobacco will be “out of sight” and thus, “out of mind”. Or at least, this is what the anti-tobacco folks want.
LG – Is the word true that upper management sent a VM to the sales force in essence telling them their jobs would be history? I see that braveheart must have heard the same issue!
With the recent increase at PM of .90 per carton I guess more folks will be looking at moist tobacco – one way of growing the moist brands as they lower the price in markets on ust products!!!!
CC-Yes, a vmail was sent to the sales force. It basically stated that the vast majority of folks will mostly likely be cut. It left open the possibility of some folks remaining, however, it is my understanding that PM will restructure and cut across the board to position itself as it gears up for a post FDA world. Consolidation is the word, for that matter, Conwood reps should be worried. Reynolds will follow PM’s lead. Trust me.
For all those who think PM knows what they are doing I will let you know I have been in the industry a long time and they already are making marketing decisions in Florida that negatively affect volume by removing the buy 2 can deal special price off when you buy 2 cans. Retailers that supported this for many many years know that you can have upwards of 70% of the rings be two cans. It will be very interesting especially seeing that 4th quarter 08 was so poor already for UST volume.
Has anyone heard when the sales force’s last day will be?
Altria just reduced the price (by increasing the price discount) for Skoal and Copenhagen by $.30/can in Southeastern states, where Conwood’s Grizzly (and other discount brands) have a large and growing market share.
Since SCHIP raises the cigarette tax by $.62/pack and the smokeless tax by just $.07/can, Altria’s $.30/can discount could encourage even more smokers in southeastern states to try Skoal as an alternative to cigarettes.
Also, some southern states are likely to increase cigarette taxes this year, which should further expand the price difference between smokeless and cigarettes.
about the voicemail… yes its says the Sales Force will be mostly eliminated. No final days have been given to anyone in sales, but that day is coming soon. I’ve heard that the part-time sales force for UST have already been laid off.
PM just rolled back the price of Cope, Skoal, & Red Seal…let the games begin.
Yes, but roll back is only for 2 months. I’m sure I will have to deal with their ups and downs; same as their smokes.
and raised the price on cigs 71 cents a pack.
See store manager above refers to the Feb/March promo. Cope & Skoal -$.62 at the end of March, Red Seal +$.20 immediatly, no more Rooster
Correction: Husky +$.20, Red Seal -$.27.
any news on the layoff of the UST reps that come by my store?
Thats right. The two-pack deals are gone by the 1st of April.
Heard today that some of UST folks were given the opportunity to interview for a job at PM. Not very happy are the folks at UST. Many good people will quickly become available!
Yes, well the UST brass took nice care of themselves, so let the workers (and middle managers who actually built the business) eat cake…. That’s corporate america today now that antitrust as become a relic for historical study…… Sad times indeed.
Well for those in the sales ranks it means that we received notice this past Tuesday that our jobs would be gone as of June 5th. It’s official and I’m sure all the Wall Street folks are happy that it’s synergistic proposal has come to reality. If you think I’m happy I’m not as I have two months to now find employment. It’s amazing that the few that have received offers from PM are not very excited either. Seems like good old upper management took care of themselves but left the troops stranded!
Let’s all give a real sincere and warm “shout out” to good ole’ Murray Kessler, the ingeneous marketing whiz from Cambpell’s Soup who engineered this amazing deal! Congrats Murray! We are amazed at your ability to multi-task: insofar as being able to not only make sure that USST lost oodles of market share to Conwood, but to date-stamp, ala Cope, the termination dates of all the people that made you rich through their hard work as it translated to all of the stock options you cashed in when Altria closed the deal.
Is it true you might be joining AIG?
Has Altria’s recent price cut for Skoal and Copenhagen resulted in increased sales / market shares?
Doubtful, my wholesaler did not order otp last week because of the floor tax issue. , thus I had alot of out of stocks last week and this week. So they already have some catching up to do. In addtition, as they phase out the UST reps (big mistake by the way) I can’t see them giving their all on smokeless. While price is important, it is just part of the equation in the otp category
Did anyone see the Philip Morris fella talking at the NATO annual awards dinner? The reason I ask is because no one could him speak as the entire room was talkng the entire time. I guess there’s not much worth listening to from PM these days…
come on you mean no-one gave the almighty any respect? i feel so bad that’s a crying shame – you ever wonder how someone could work for PM – i actually heard someone at the show mention they were getting into the vaseline business – lmao
SO HERE IS WHAT IT MEANS! THE DEATH OF THE CATEGORY!
Subject: U.S. Smokeless Tobacco Brands 2009 Retail Program – Amendment
Dear Valued Retailer:
On May 1, 2009, USSTB announced the U.S. Smokeless Tobacco Brands 2009 Retail Program.
Today, USSTB is amending that announcement.
To participate in the Program, effective June 1, 2009, you must sign the Agreement and also meet the following minimum merchandising requirements by July 31, 2009:
• USSTB Share of Segment Space
• USSTB Interior Signage
• USSTB Fixture Headers, if applicable
• NSS Merchandising, if applicable
As a reminder, payments for the Return Rate Performance, under the Cents Per Can Payment Option of the Retail Program, are not available for June 2009.
If you have any questions, please call your PM USA sales representative.
U.S. Smokeless Tobacco Brands Inc.
It will be interesting to see how many retailers and distributors take the time to undertsand how the PM programs will kill the fabulous growth in the snuff category. The funding they are offering is pitiful when considered against what you give up – meeting the needs and wants of consumers, your expertise in managing your own business, your soul to name a few. Let’s see some backbone.
“If you have any questions, please call your PM USA sales representative”…..yeah right…the clueless ones.
PM is now in the RYO business in Michigan and Maine, with L&M cans and pouches. Their effort is a joke, and all the retailers I have spoken to aren’t even planning on bringing the stuff in at this time.
Altria Group, Inc announced June 26th that Murray Kessler, vice chair of Altria and president/CEO of UST LLC, will leave the company at the end of June, having overseen UST’s integration into Altria following the closure of the transaction in January 2009. (Business Wire 06/26)
PM cleans house on everyone and every company they touch.
Well I proudly must say that this acquisition has done absolutely zilch in derailing the growth of the new #1 brand in the moist category. Grizzly long cut wintergreen has now securely secured the top position. Poor tired old brands were bought by PM. And by the way the one thing that RAI has done right is keeping the MST folks on board. The early results from PM MST performance is just dreadful! Murray you left just in time! Grizzly what an amazing brand!
Breaking Story: Word has it that Walgreen’s is dicontinuing all USST products. Shelves are basically empty of Skoal and Cope. Can someone confirm?
Like Walgreens sold any anyway – i’m sure with the new return procedures a lot of folks will do the math. From what Grizwald says its pretty interesting to see PM floundering at this point!
Memo to Altria brass: You dumped the wrong sales force. You should have kept the Usstc force and dumped your “Altria yes men”.
It will all prove out in the numbers. PM just doesn’t care as long as they control share. They thought they knew what they were doing in Georgia but that never worked out with their own name. I wonder whether Marlboro is a tired old brand also as referenced above regarding Cope and Skoal!
UST moist snuff sales have declined dramatically since the acquisition by PM. They turned a (slightly) growing business into a declining business. Worse yet, they tied their share of the Moist Snuff rack to their can share of the category. Not a good idea with ever-declining share. At current share loss rates, they should lose around 3 slots by the time the current MST retail contracts are up.
OK so do any of you sour-grapes ex-UST guys know if Walgreen’s is disontinuing the lines or not?
I find out for you OTP KID.
I hear PM can’t even right side their cig numbers right now either.
Just received confirmation from a distributor that supplies Walgreen’s that only USST products are being removed from the set due to the Altria return policy. Not sure if this was initiated by Altria or Walgreen’s. Looks like a good day for Grizzly!
It’s still very early in the game. I wouldn’t count Altria out. The track record speaks for itself coupled with the FDA passage. If they go down they’re gonna go down swing’n.
It is too early to count PM out on the MST side. It will take a while for them to right the ship. On the downside for them are the risks from both Camel snus and newly introduced Camel MST (not to mention Grizzly). I believe they will stabilize, but getting back to growth will take time and be difficult.
Any thoughts from the community on the reduction in pricing on Skoal Edge? Threat to competitors or just blowing smoke?
Seems like Mr. Tobacco must be in disguise for Mr. PM.
There ain’t a chance in hell that they right side this ship!
Skoal Edge is a bad idea gone badder! Volume just tanked Mr. Tobacco. Pretty soon they will be giving it away. Who is running the moist ship at PM any way? Is it Mister Mike? I ask you a question Mr. Tobacco, How does a sales force that once had disdain for a product now embrace a product? Will be very interesting if you ask me but then I’m a long time Copenhagen dipper!
Mr. Copenhagen Charlie,
I suspect you are right, and what you stated is pretty much what I feel half the time. The other half of the time I get nervous and think there must be a way that they figure this out. Let’s face it, Cope/Skoal are tired brands. Grizzly has all the thunder and is the market leader. They have taken some big actions this year, but no data I see shows any improvement in the business. At least it what growing under UST management. Unless something else changes, the situation should right itself to the detriment of PM. They tied their space to their share, and their share is declining. At the end of the the current round of MST retail contracts, they should have 3-4 fewer slots in the rack.
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