No industry has cash flow like the tobacco industry. Making cigarettes costs very little compared to what the consumer pays. With a few plant upgrades, there is not much capital expense. Many tobacco firms have operating margins of 20%.
That made it all the more shocking that Altria Group (NYSE: MO) said it would delay buying UST Inc. (NYSE: UST) because of concerns about the credit market. Altria is considered one of the most stable large companies in the U.S. According to The Wall Street Journal (subscription required), "While attention has been focused on problems in the market for short-term loans or lending between banks, the Altria situation shows that even highly rated companies borrowing money for standard purposes such as acquisitions are having trouble getting funding."
The transaction for UST was valued at just over $10 billion, but the company had $2 billion in revenue and almost $900 million in operating income last year. The firm only has $1 billion in long-term debt.
If the Altria buyout can be scuttled by the credit crisis, any deal can be. More pending M&A transactions may be delayed or killed, even if both companies in a marriage are healthy.
Things has gotten that bad.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-04-2008 @ 2:34PM
Ramon Wright said...
We have been in ther Antique and Art Business for over 30 Years. Our business is better than it has been in years, The Wealthy are buying like crazy and the middle class is selling at any price they can get. I guess the middle class needs cash to just live. The Art Market is Mixed, and signed American and European Art is Up.(Put 30% of your
Money in Fine Antiques and Art)
Ramon L. Wright
Show Me Antiques
Kansas City,Kansas