Altria & UST Could Face Antitrust Issues (MO, UST)

By Douglas A. McIntyre Updated Apr 27, 3:38PM EDT · Published Sep 5, 9:36AM EDT

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The merger chatter this morning has Altria Group Inc. (NYSE: MO) looking at UST Inc. (NYSE: UST) in a deal valued at $10 Billion or higher. This could be a major score for Big Tobacco. The Us cigarette leader could grab hold of the largest smokeless tobacco company. Marlboro could add Skoal, Husky, Copenhagen, and other brands to its smokeless tobacco operations to become the leader in that sector as well. But that may also bring up antitrust issues and potential regulatory hurdles.

The current administration has not really blocked any mergers over thelast eight years. Whether the 2009 to 2012 president ends up beingMcCain or Obama, it is very likely that the new administration’s regulatory appointees won’thit each merger application with the auto-approve stamp. Altria is worth more than $40 Billion today and the post-story pop has the value of UST right around $10 Billion. Even if dealsof this size or magnitude are approved they may take longer and comewith more conditions than the last eight years have seen. Does thismean the deal would get blocked? No, likely not. But merging twoleaders in field would face scrutiny not just on the federal level.You have top recall that Big Tobacco has settlements with individualstates who rely upon the companies for taxes that go years and yearsinto the future.

Another issue that may come up is that Altria would have to decide ifit wants to keep UST’s wine operations. Altria already holds a 28.5% stake inSAB/Miller. UST’s Ste. Michelle Wine Estates produces and marketspremium wines sold nationally through the Chateau Ste. Michelle,Columbia Crest, Snoqualmie and Stag’s Leap Wine Cellars wineries, aswell as sparkling wine sold under the Domaine Ste. Michelle label. Italso is the exclusive U.S. distributor of wines made by Italy’sMarchesi Antinori. This would give Altria either another revenuestream it currently doesn’t have, or the company could decide to putthe unit up for sale to help finance a deal.

It appears that Wall Street likes the notion of this merger. On a day where themarkets are down about 1% we see Altria shares are up 1% at $20.87 andUST shares are up almost 25% at $67.32. If the companies do decide tomerge it would seem that they would ultimately be able to get the deal approved.After all, both presidential candidates are generally deemed as tobacco friendly.There would just likely be certain conditions upon the terms andforward pricing.

Jon C. Ogg
September 5, 2008

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.