Something to chew on
For years, it was among the most intriguing bits of scuttlebutt on Tobacco Road ”“ would the Marlboro Man add chewing tobacco to his corporate tobacco pouch?
According to UST Inc., those were rumors written in smoke, until now.
The Stamford-based maker of Skoal and Copenhagen snuff has scheduled a special meeting of shareholders on Dec. 4 in New York City to vote on Altria Group Inc.”™s offer of $69.50 for each share of UST, a price UST locked in on Sept. 7 after weeks of haggling ”“ and just days before the Lehman Brothers bankruptcy that triggered a panicked collapse in stock prices.
In a filing with the Securities and Exchange Commission, UST acknowledged past speculation in the marketplace that Altria had a serious interest in acquiring the company, but denied any contact between the companies on the topic before May 29, 2008.
That Thursday, Altria”™s CEO Michael Szymanczyk called his UST counterpart Murray Kessler, who did not respond until the following Wednesday after reporting the inquiry to some board members and the company”™s legal and financial advisors.
Szymanczyk broached the possibility of a transaction involving Altria and UST, and Murray agreed to meet two weeks later following his company”™s annual strategic meeting.
At that meeting, UST formed a three-member “transaction” committee to review Altria”™s offer, led by director John Clancey, who is also chairman of marine cargo shipper Maersk Inc.; those three men would each receive a $125,000 payment for the time they put into the deal.
UST”™s board rejected Szymanczyk”™s initial offer of $67 a share for UST, but hinted it might be amenable to a figure in the range of $75. After a July 6 call from Szymanczyk in which he again offered $67 and defended the offer, Kessler “emphasized the importance of ”¦ having a ”˜7”™ as the first digit of its proposed purchase price,” according to UST”™s filing with the SEC.
On July 15, Szymanczyk made the $69.50 offer that UST would ultimately take, and asked UST to decide in advance of the companies”™ third-quarter earnings releases later that month.
In a scramble involving some of Manhattan”™s elite merger advisory firms, UST removed Centerview Partners L.L.C. from the negotiations, due to the firm having represented Altria in the $46 billion spinout last year of Kraft Foods Inc. UST initially hired Sullivan & Cromwell L.L.P. ”“ the New York City-based firm was recently trumpeted by the Wall Street Journal as “the lawyer for all Wall Street” in the current financial crisis ”“ and later added Perella Weinberg Partners as an advisor, in addition to Citigroup Inc.
Even after Perella Weinberg determined that the Altria offer on the table was likely a premium over what the company could achieve independently, the board directed Kessler to schedule another meeting with Szymanczyk in an attempt to chisel out a better deal.
Kessler hit a rock ”“ Szymanczyk told Kessler on July 31 that Altria was rerunning its financial models after UST reported soft results. Kessler begged for a 50-cent hike per share, but after Szymanczyk reiterated the existing $69.50 offer on August 5, Kessler gave his verbal assent to proceed with a deal at that price.
For the rest of August and into September, the companies hammered out details involving termination fees and how to retain key UST employees.
Kessler stated he was not interested in a long-term job with Altria, but signed an employment agreement lasting one year from the date of the deal”™s completion. According to UST, that should occur in the first week of January, after Altria”™s financiers asked the company not to hold off on the deal until 2009 for unspecified reasons.
In what could have been his last conference call with analysts at the helm of UST, Kessler declined to answer specific questions on the deal but gave a few general thoughts.
“I had no idea whether we were going to sign the deal with Altria,” Kessler said. “We had to make that decision in June or July, and we negotiated through the course of the summer; and maybe it was going to happen and maybe it wasn”™t.”