MEMORANDUM TO: UST Inc. Investors CC: FROM: DATE: SUBJECT: Debt Policy at UST Inc. ADD INTRO PARAGRAPH From the viewpoint of the bondholder‚ UST Inc. has various attributes that make the company a safe‚ yet sometimes risky investment. Qualities that make UST Inc. a superior investment include their excellent A-1 credit rating and their strong brand name and market position‚ which has made UST Inc. one of the most profitable companies in corporate America. While their asset tangibility
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manufacturer in the moist smokeless tobacco industry‚ UST Inc. has long been recognized by its ability to generate high profit using low financial leverage. With a dominant market share of 77%‚ the company maintains a pricing power that allows it to institute annual price increases without losing costumers. However‚ UST’s market share was eroded significantly in recent years by price-value competitors who enter the market with lower prices. Although UST responded to these threat by introducing new products
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policy at UST inc. Case To: UST Board of Directors From: UST Financial analysis team Date: 18 January 2011 Subject: Future debt policy at UST and recapitalization option 1. Analysis of UST business current and future environment UST operates in the smokeless Tobacco industry‚ a market with 2 B$ of revenues‚ which grew at a CAGR of 3.7% over the past 17 years‚ but more recently experienced a decrease in growth rate‚ dropping to 2.9% in 1997 and 1.2% in 1998. In this market‚ UST has a very
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Holding nearly 80% of the market share in the smokeless tobacco industry‚ UST Inc. has been generating large and stable income. However‚ the leading company in a certain industry tends to react slowly to market share erosion by competing firms and lack of creativity in the introduction of new product‚ a situation UST Inc. is now undergoing. Concerning the declining sales growth and gradual loss of the market share‚ UST Inc. is now considering recapitalizing by issuing debt amounts to $1 billion.
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Case 1 – Debt Policy at UST Inc. 1) UST is the dominant producer of moist smokeless tobacco‚ or moist snuff‚ controlling approximately 77% of the market. UST has been one of the most profitable companies in corporate America with low debt compared to other companies in the tobacco industry and the company has been recognized by Forbes in terms of profitability by achieving return of capital of 92.1%. Price elasticity of its products is also important while evaluating. Smokeless tobacco industry
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FNCE 201 Corporate Finance Prof. Fu Fangjian Due: the class in 4th week (10-14 Sep) UST Inc. is considering a debt-for-equity recapitalization. In the deal‚ UST will issue $1 billion debt to buy back stocks. In class we argue that an important determinant of a firm’s debt policy is the tradeoff between the tax benefits of debt and the costs of financial distress and bankruptcy. Mature firms generating positive and stable operating income are more likely to take advantage of the debt tax shields
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Debt Policy at UST Inc. Executive Summary In the 1990’s‚ UST was a dominant producer of moist smokeless tobacco‚ controlling 77% of the market. Smokeless tobacco products consist of snuff (dry and moist) and chewing tobacco (loose leaf‚ plug and twist/roll) categories. UST was a market leader of the snuff product category‚ innovating with new product forms and flavors over the years. UST has also been a profitable company‚ boosting its shareholders’ earnings by undertaking measures such
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Summary UST Inc. has historically been one of the most profitable companies. Profitability stems from its commanding market share‚ strong name brand recognition‚ historical pricing flexibility‚ and growing smokeless tobacco demand. However‚ UST faces business risks including eroding market share‚ tobacco lawsuits‚ and reduction in innovation. UST Inc. is considering a leveraged recapitalization to help in shielding the tax‚ increasing the share price and eliminating idle cash and debt
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5204 MANAGING CORPORATE CAPITAL INVESTMENT AND CAPITAL STRUCTURE FALL 2007 DEBT POLICY AT UST INC. 1. WHAT ARE THE PRIMARY BUSINESS RISKS ASSOCIATED WITH UST INC.? WHAT ARE THE ATTRIBUTES OF UST INC.? EVALUATE FROM THE VIEWPOINT OF THE BONDHOLDER. Over the years‚ UST has been a dominant producer in the tobacco industry‚ specifically the moist tobacco industry. Even though the past strategy with UST has entailed raising the prices of its products on a regular basis‚ the company still shows signs
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Debt Policy at UST 1. How well is UST doing? * UST has been doing extremely well. Revenues and earnings are growing at 9% and 11% respectively. * Named by Forbes as one of the top companies in terms of profitability. ROC‚ ROE and GPM one of the industry highest. * Paying back generous dividends of $2.2b and repurchasing $2b from 1988 to 1998. * However‚ they seem to be losing market share in the premium market to competitors and have not been able to make an impact in the
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