M&A

Altria’s Lenders Seek to Delay a Deal

The highly rated tobacco company's purchase of UST could be pushed back until January.
Stephen TaubOctober 6, 2008

Altria Group Inc. may delay its acquisition of rival UST Inc. on the request of its lenders.

The pending transaction — which Altria announced in early September — could be pushed back to January even if conditions for closing are met prior to the end of this year. The delay reflects the ripple effects the credit crunch has had on nonfinancial companies, even those whose credit is highly rated. According to the Wall Street Journal, Altria’s lenders are Goldman Sachs Group Inc. and JPMorgan Chase.

“While Altria currently has fully committed financing to complete the transaction, Altria’s lenders advised that it would be preferable to close the transaction in 2009,” the tobacco company said in a press release.

In a new agreement between the companies, they increased the “reverse termination fee” from $200 million to $300 million. If the deal is terminated by Altria or the merger has not been completed by the end date, then Altria must pay UST a reverse termination fee of $200 million. If Altria has not exercised its right to extend the closing date beyond December 31, then the UST would get an additional $100 million.

On Sept. 7, Altria — known for its Philip Morris brand — agreed to buy smokeless-tobacco maker UST for $11.7 billion, plus the assumption of about $1.3 billion of debt, in an all-cash deal.

After the deal was announced, Moody’s affirmed all ratings for Altria, including its long-term senior unsecured debt rating of Baa1, but revised its outlook to negative.

The last rating action regarding Altria was on October 24, 2006, when Moody’s upgraded the company’s long-term ratings, including its senior unsecured rating to Baa1 from Baa2.

After the Altria deal was announced, Moody’s placed UST’s A3 senior unsecured rating under review for possible downgrade.