Monday, January 12, 2009

Altria Closes the deal on UST

Big Tobacco amidst the worst economic times our country has seen since the Great Depression is well positioned to be making large purchases. Altria Group, the parent company of Phillip Morris (PM), the United States' largest tobacco company has finalized their purchase of U.S. Smokeless Tobacco Company (UST), the largest smokeless tobacco company in the US. For the full article link here.
During a time when most other stocks are losing ground and our financial markets are unstable, the tobacco industry is still making gains. PM USA increased its net revenue by 2.1% to $5.1 billion in the third quarter in 2008. Of course businesses want to grow and show their stock holders a return on their investment. However, the difference between Big Tobacco and other companies is that the tobacco industry profits off of the sale of a lethal addictive product, specially marketed to vulnerable populations. But why you might ask would Phillip Morris move into the spit tobacco market? Quite simply, Tobacco Control has been so successful in enacting smoke-free laws, Phillip Morris needs to find a way to maintain its profitability. Smokeless tobacco is the key to preserving their profits. What we are seeing is that industry wide tobacco sales are decreasing 3 to 4% annually, but smokeless tobacco is increasing 6 to 7% (according to a Wall Street Journal article mentioned in this article about the merger: Seeking Alpha). The fight for smoke-free air is leading to increased use of smokeless tobacco. Altria group under the names of Phillip Morris, Marlboro, Copenhagen, Skol, and many others will ensure its share of profits by moving into new markets and ensuring their addictive, deadly substances are still killing people at home and abroad.

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