Tobacco

Economics rather than ethics will harm big tobacco

21 Jun 2017

Aviva is the latest investor to quit cigarette stocks. The sector has yet to suffer any material harm. Nor does it lack capital. Yet there are good reasons to be nervous: growing regulatory risk and competition from electronic alternatives make current valuations unsustainable.

Slow burn pays off for BAT and Reynolds

17 Jan 2017

British cigarette maker British American Tobacco has bumped its offer for its U.S. rival, offering $49 bln for the shares it doesn’t already have. The deal should easily hit BAT’s return targets, even if savings aren’t huge. Reynolds was right to hold out.

Reynolds can get more of what BAT’s smoking

15 Nov 2016

The U.S. tobacco maker rejected an offer from its biggest shareholder that values the whole company at $76 bln. A new government at home gives Reynolds a smidgeon of extra negotiating heft. The case for a deal, meanwhile, remains as bewitching as the evil weed itself.

BAT heaps $47 bln of peer pressure on Reynolds

21 Oct 2016

The UK tobacco giant has offered a near 20-pct premium for the 58 pct of the U.S.-based Camel-maker it doesn't own. It's opportunistic - Reynolds just named a new boss, and has disappointed investors. Still, the logic of uniting the two is as hard to resist as a Newport menthol.

CalPERS learns social responsibility can be a drag

5 Apr 2016

The $290 bln California pension fund may reinvest in tobacco stocks after a report found that exiting the sector cost it $3 bln over 15 years. There’s more to the idea than higher returns, though. Engaging financially with controversial firms can be a better way to effect change.

Japan Tobacco gives Reynolds breath of fresh air

29 Sep 2015

The buyer is paying $5 bln for the overseas rights to the U.S. cigarette group’s American Spirit brand - a whopping 250 times earnings. It’ll allow Reynolds to exhale a cloud of debt as it focuses on U.S. sales. Its strategy is a handy guide for similarly challenged sectors.

Rob Cox: Ushering Eric Cantor to revolving door

7 Aug 2014

The summer parlor game from Wall Street to K Street to Meadow Lane in the Hamptons is guessing where the former U.S. House majority leader will work after decamping from Congress. It’s easy to imagine how a recruiter might try to put his experience to good – and lucrative – use.

Market has message for tobacco M&A trustbusters

15 Jul 2014

Reynolds and Lorillard have gained over $10 bln of market value since talk of their $55 bln merger surfaced. That can’t be justified by promised savings or the market rally. Anticipation of a surge in pricing power through the creation of a duopoly explains investor enthusiasm.

Imperial prepares $7 bln gamble

11 Jul 2014

The UK tobacco group wants to acquire assets sold following a possible merger of U.S. peers Reynolds and Lorillard. Imperial may win a path to scale in America. But the positive market reaction is too sanguine about balance-sheet strain and the acquisition of low-growth assets.

Tobacco deal may work if survives regulatory fire

4 Mar 2014

Reynolds American might be mulling a bid for rival Lorillard. Similar deals suggest the Camel cigarette maker could sensibly stretch to offer a 30 pct premium. The strategic benefits are also fairly clear. But antitrust and other watchdogs may send any transaction up in smoke.

Altria could be cigar butt – in a good way

21 Oct 2009

Warren Buffett reckons some dogeared stocks can deliver more puff than expected. USfocused Altria's cigarette volumes are falling and healthcare reforms could further burden smokers and manufacturers. But investors could be underestimating the Marlboro Man's resilience.

Altria has lots to chew on with $10bn UST deal

5 Sep 2008

At some 18 times earnings, the maker of smokeless tobacco wouldn t be coming cheap. To justify the premium, Altria would need to cut about a third of UST s costs to make money it would need to go further. For its first deal since breaking up, the stakes are high.

UST looks tempting – even if Altria doesn’t bid

31 Jan 2008

The tobacco patch is buzzing with speculation that snuffmaker UST is in play. A deal with Altria would seem to make perfect sense. But even if a bid fails to materialise, UST still looks like a solid defensive bet.

Defensive stocks make for an expensive safe haven

7 Nov 2007

Consumer staples stocks have easily outperformed the broader market amid credit worries and the housing slump. But while demand for food, tobacco and beverages may hold steady through a storm, their purveyors' shares are starting to look pricey.

Altria should keep its international arm

29 Aug 2007

The timing of Altria's spinoff looks odd. The fear of crippling lawsuits that once threatened the company's survival has mostly subsided. Moreover, tobacco is a shrinking business in the US but booming overseas and it s not clear the deal will unlock much value anyway.

Imperial Tobacco rises above credit wobbles

1 Aug 2007

While other deals unravel, Imperial s E16bn offer for rival Altadis looks safe. Banks have given its debt package a tight guarantee. One reason is its stable cash flows. Another is that the banks get flexibility in timing and pricing Imperial s huge E8bn rights issue.

Synergies triumph over debt in E16bn Altadis deal

18 Jul 2007

Imperial Tobacco won the Spanish rival s endorsement at the same price that private equity firm CVC said it would offer back in May. But times are now harder for highly leveraged borrowers. CVC won t easily beat industrial logic, listed shares and investmentgrade debt.

LBO uncertainty could explain Altadis bid drag

13 Jul 2007

Imperial Tobacco and CVC seem to be on a goslow in their bids for the E12bn Spanish tobacco firm. That could be a smart move for Imperial. Its financing relies on synergies. They won t disappear overnight. But the easy credit conditions fuelling CVC s leveraged bid might.

Altadis board should act to pre-empt conflicts

21 Jun 2007

CVC may offer top management E120m of equity as part of its bid for the company. That could bias them to favour its bid over Imperial's. Altadis' CEO is planning to take no part in assessing the bids should CVC offer management equity. It might be even wiser to step back now.

CVC’s prepares equity-lite bid for Altadis

20 Jun 2007

For the banks providing the bridge, this is a risky proposition indeed. No wonder Goldman, CVC s main advisor, is sitting it out. By leaning on debt and an equity bridge, CVC hopes to win majority control of the E15bn Spanish tobacco firm for just E1.7bn.