Altria goes smokeless
No, the maker of Marlboros and the #1 world cigarette maker has not stopped selling tobacco. Rather, it has acquired the #1 US smokeless tobacco company UST (US Tobacco). UST is the maker of Skoal and Copenhagen smokeless tobacco (snuff). The deal is estimated at $11/3 billion, including assumed debt.
Snuff is the fastest growing sector of the US tobacco business. Interestingly, Altria itself makes smokeless tobacco under the Marlboro name, though it has not been a big seller in the US. In 2006, Altria's biggest competitor, Reynolds American (formerly R.J. Reynolds, the maker of Camel cigarettes) bought Conwood, the #2 US maker of smokeless tobacco for $3.5 billion.
UST, by the way, also owns Michelle Wine Estates, a maker of premium wines in the US. No decision has been made on whether Altria will keep it or sell it off.
The deal follows Altria's big move into cigars in 2007, buying John Middleton.
While many deals claim synergy, the Altria-UST deal is a slam dunk. The distribution and sales channel is the same for these products, and Marlboro, Skol, and Copenhagen are all market leaders. That means a lot of sales leverage and convenience in distribution. The company has the expertise to deal with the same international tax and health issues. And in yet another area, Reynolds American is left at #2.
