Altria Completes John Middleton Deal

Gets regulatory OK to acquire cigar maker

NEW YORK -- Altria Group Inc. said yesterday that, having received regulatory clearance, it has completed the acquisition of John Middleton Inc., a leading manufacturer of machine-made large cigars, from privately held Bradford Holdings Inc. for $2.9 billion in cash.

The deal represents a major move into cigars for the parent of Richmond, Va.-based Philip Morris USA.

When the deal was announced in early November, Michael E. Szymanczyk, chairman and CEO of PM USA, said when the deal was announced in early November, "The acquisition [image-nocss] is both strategically compelling and financially attractive. It fits squarely with our announced strategy to grow our U.S. tobacco business beyond cigarettes and complements our recent initiatives in the smokeless category."

John Middleton's operating revenues are projected to reach $360 million in 2007, generating operating income of $182 million. Over the 2003 to 2007 period, operating revenues and operating income are estimated to have grown at compound annual rates of approximately 10% and 13%, respectively, driven by the strength of the Black & Mild cigar brand franchise. In 2007, total company cigar volume is expected to reach 1.2 billion units.

The acquisition, which will be financed with existing cash, is expected to be modestly accretive to New York City-based Altria's 2008 earnings and generate an attractive double-digit economic return.

"While there may be some cost savings, captured predominantly through procurement synergies and the elimination of duplicative expenses, the real appeal of this acquisition is to capitalize on PM USA's sales, distribution and marketing infrastructure and expertise," Szymanczyk said. "Further, PM USA will contribute its strong capabilities, resources and focus on corporate responsibility, including youth smoking prevention."

He added, "The plan is to accelerate the Black & Mild brand's market share growth momentum in the years ahead by leveraging the expertise and capabilities of both John Middleton Inc. and PM USA."

Black & Mild, a cigar made with a proprietary blend of pipe tobacco, enjoys strong brand equity, high brand awareness and solid volume and share growth momentum, Altria said. The brand is the second-largest selling machine-made large cigar in the United States, it added, with a retail market share of approximately 23%, and the Black & Mild five-cigar pack is the best-selling large machine-made cigar package in the United States, said Altria, citing data through June 2007 from Information Resources Inc. (IRI). It is particularly strong in the U.S. South and Southeast, which together account for approximately 55% of segment volume.