Author Topic: MO - Altria Corp  (Read 24432 times)

frommi

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ander

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DooDiligence

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Re: MO - Altria Corp
« Reply #22 on: December 07, 2018, 05:02:31 PM »
$2.4 billion for a 45% stake in a business with $10 million in revenues & nearly $7 million in losses over the last 9 months.

They could set up their own operation for a fraction of the cost.

Disconcerting.
Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

rb

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Re: MO - Altria Corp
« Reply #23 on: December 07, 2018, 05:23:22 PM »
They can't set up their own operation.

DooDiligence

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Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

HalfMeasure

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Re: MO - Altria Corp
« Reply #25 on: December 07, 2018, 06:12:44 PM »
They can't set up their own operation.

Step 1

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/apply-cannabis-licence.html

Keep in mind, the incumbent tabacco companies operating in the U.S. have to play the situation with a certain finesse due to the importance of the tobacco lobby. If they go off pioneering in a substance that isn't decriminalized nation wide, they run the risk of stepping offside politically which could quickly cost more than $2.4bln. Having an investment in a separate company is significantly different optically from building it internally, and in this case there's value to such separation.

DooDiligence

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Re: MO - Altria Corp
« Reply #26 on: December 07, 2018, 06:25:22 PM »
They can't set up their own operation.

Step 1

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/apply-cannabis-licence.html

Keep in mind, the incumbent tabacco companies operating in the U.S. have to play the situation with a certain finesse due to the importance of the tobacco lobby. If they go off pioneering in a substance that isn't decriminalized nation wide, they run the risk of stepping offside politically which could quickly cost more than $2.4bln. Having an investment in a separate company is significantly different optically from building it internally, and in this case there's value to such separation.

My thought, all along, has been that Altria would wait until marijuana was removed from schedule 1 status for the very reason you mention.

I find it incredible that they'd take this risk & additionally, I find it incredibly stupid for them to pay so dearly for something that looks so crappy.

My comment about them starting their own operation was a sarcastic remark.
Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

orthopa

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Re: MO - Altria Corp
« Reply #27 on: December 08, 2018, 09:08:40 AM »
They can't set up their own operation.

Step 1

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/apply-cannabis-licence.html

Keep in mind, the incumbent tabacco companies operating in the U.S. have to play the situation with a certain finesse due to the importance of the tobacco lobby. If they go off pioneering in a substance that isn't decriminalized nation wide, they run the risk of stepping offside politically which could quickly cost more than $2.4bln. Having an investment in a separate company is significantly different optically from building it internally, and in this case there's value to such separation.

My thought, all along, has been that Altria would wait until marijuana was removed from schedule 1 status for the very reason you mention.

I find it incredible that they'd take this risk & additionally, I find it incredibly stupid for them to pay so dearly for something that looks so crappy.

My comment about them starting their own operation was a sarcastic remark.

I think if you wait for marijuana to come off sched 1 you waited to long not to mention dealing with the FDA with new products (which may happen anyway). How long have we been waiting on IQOS now?  Even though MO has been principally domestic I think for a while this will be a global story. 1st mover advantage has something to be said.  The price paid was high but this certainly has a long term time horizon. The purchase of UST for 10.8 B seemed a bit high in 2008 but smokeless has revenues ~2B a year now and growing with 65-70% margins.

Altria has a history of pretty successful acquisitions. UST, Kraft, SAB miller.  I couldnt find the financials at the time of take over but certainly some premium was involved. Probably not to the level of CRON though. Based on their track record I am comfortable if they are. 

https://www.nytimes.com/1988/10/31/business/kraft-being-sold-to-philip-morris-for-13.1-billion.html

https://www.reuters.com/article/us-ust/altria-to-buy-ust-for-10-4-billion-idUSBNG23930220080908

Interesting reading reuters article about declining smokers and subsequently looking at returns since.

DooDiligence

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Re: MO - Altria Corp
« Reply #28 on: December 08, 2018, 09:14:57 AM »
They can't set up their own operation.

Step 1

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/apply-cannabis-licence.html

Keep in mind, the incumbent tabacco companies operating in the U.S. have to play the situation with a certain finesse due to the importance of the tobacco lobby. If they go off pioneering in a substance that isn't decriminalized nation wide, they run the risk of stepping offside politically which could quickly cost more than $2.4bln. Having an investment in a separate company is significantly different optically from building it internally, and in this case there's value to such separation.

My thought, all along, has been that Altria would wait until marijuana was removed from schedule 1 status for the very reason you mention.

I find it incredible that they'd take this risk & additionally, I find it incredibly stupid for them to pay so dearly for something that looks so crappy.

My comment about them starting their own operation was a sarcastic remark.

I think if you wait for marijuana to come off sched 1 you waited to long not to mention dealing with the FDA with new products (which may happen anyway). How long have we been waiting on IQOS now?  Even though MO has been principally domestic I think for a while this will be a global story. 1st mover advantage has something to be said.  The price paid was high but this certainly has a long term time horizon. The purchase of UST for 10.8 B seemed a bit high in 2008 but smokeless has revenues ~2B a year now and growing with 65-70% margins.

Altria has a history of pretty successful acquisitions. UST, Kraft, SAB miller.  I couldnt find the financials at the time of take over but certainly some premium was involved. Probably not to the level of CRON though. Based on their track record I am comfortable if they are. 

https://www.nytimes.com/1988/10/31/business/kraft-being-sold-to-philip-morris-for-13.1-billion.html

https://www.reuters.com/article/us-ust/altria-to-buy-ust-for-10-4-billion-idUSBNG23930220080908

Interesting reading reuters article about declining smokers and subsequently looking at returns since.

I owned UST at the time & was sad to have to sell the shares.

I didn't know as much as I do now about how to look at companies but felt like it was a great business at the time.
(FWIW, I barely know how to intelligently look at businesses now  :o )

My ability to develop insights is limited & I thank you & others for coddling me along  :)

What are your thoughts on internationalization?
A PM re-merger with Altria has been mentioned before.
Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

orthopa

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Re: MO - Altria Corp
« Reply #29 on: December 08, 2018, 09:34:54 AM »
Well for one getting rid or eliminating e vapor products kills Juul and others that have invested much more time effort to extract that market segment. MO breaks even or loses money on e vapor/MarkTen products not to mention the contribution to revenue and eps is a rounding error.

Moving purchase age up has already been instituted in a couple states and has not affected volumes. Many people under the age of 18 smoke now same will happen if age is 21.

Menthol regulation is not unilateral on the FDAs part and could/will likely take years to institute. Lawsuits will come undoubtedly and those take a long long time. Secondly FDAs stance is to move away from combustible products in general so long term transition to nicotine delivery devices that are not combustible is what is going to happen and MO is ok with it. FDA says menthol e cigs still ok but combustible not. Secondly no mention of chew, move those people over to chew then also and infact MO has submitted MRP application for chew.

In mean time Altria kills competitors (who do you think lobbied FDA on Juul and teenage usage?)and moves nicotine lovers to a noncombustible option.  Its quite clear to alerted FDA to teen usage/flavors, etc. Altria is in FDAs back pocket.

Its my 3rd largest position, one Im most knowledgeable on and will add at 6% div yield.

Does today's WSJ article about Altria negotiating to buy a stake in Juul Labs make you question this thesis? It seems like a "if you can't kill em, join em" type scenario.

Personally, I think the Juul device is the genie that has come out of the vaping industry bottle. It's going to be an uphill battle for anyone to turn back the tide. Keep in mind that, as consumer tech, vaping device improvements will continue at a rapid pace. The vaping industry in the US is only ~10 years old!

I think it certainly is if you cant killem join em. For a couple reasons this would work out great for both companies.
 1. With recent FDA regulations and Juul having to pull products and multiple flavors off the shelves valuation will certainly be lower. Recent funding valued it at ~12B last summer with sales thought to be 1.8-2B.  A couple billion being knocked off valuation not out of question now. The majority of Juul's volume was C store and going to be heavily curbed if FDA goes forward with strict flavor and point of sale restrictions. Juul advertised most on FB and instagram etc. Thats gone now.
2. Altria has the premium shelf space and tends to give the best margins to retailers so that gives Juul and instant in and with Marlboro name more incremental margin and introduces the product to the millions of 30+ year old smokers who are loyal to Marlboro.
3. MO has massive regulatory clout with FDA. With recent moves we see how much Juul has as recent FDA actions handcuffed them the most.

In the long run MO buys up new threat, Juul investors/owners get buyout and team up with most powerful player in industry. Ecigs/pods are MOs weakest segment.

Long run I bet we see MO go "smoke free" like PM has and will eventually sell "nicotine delivery devices". If this goes through this is a huge step towards it. If Juul backs down from deal then they essentially will have to fight the FDA and Altria side by side.  Not to mention PMTA applications are expensive like upwards of 100 million dollars expensive and no now one is better versed on regulation/lawsuits etc then Altria.  If you go back and look Altria voluntarily took all of their pod devices and flavors off of the  market before FDA statement. Saves face, makes them look like the good guy and more then willing as their volume is nil  while 100% of Juuls.

If $MO had "massive regulatory clout" with the FDA, Gottlieb wouldn't be pushing to ban menthol cigarettes. $MO has been clear that it does not want menthol cigs banned.

$PM hasn't gone "smoke free." While it has been the most proactive of the big tobacco companies in the next gen products space, the vast majority of its cash flow still comes from traditional combustible cigarettes. Whether $PM's IQOS will be a success outside of the Japanese and Korean markets is still a very open question.

Not sure I see the logic of MO not having regulatory clout and Gottlieb wanting to ban menthol. The FDA can want to do whatever it wants. The FDA has threatened to ban menthol every couple of years for the last 20 years. Whether or not it gets done is the issue.  I think the best example of regulatory clout is that fact that the US has no plain packaging and warnings that are minimal compared to other countries.

Secondly of course MO doesnt want menthol banned. Why would a company want 25% of their volume banned? Doesn't mean its going to happen or not happen over many years.  Key though will be whether non combustible menthol is banned in the final language of law. I assume you read the FDA treatment of menthol e cigs in the last FDA statement?  If final regulation spares non combustible nicotine then new objective over time lawsuit takes to run through is to switch consumers to menthol e cigs  ie Juul, green smoke and Mark Ten.

...And in to regards to PM..yes PM is going or at least trying to go smoke free. Their home page has the headline "Designing a smoke free future" for christ sakes.   My hope is at a minimum if one was going to discuss MO/PM they would at least have a basic understanding of what PM current sells in regards to combustible/IQOS/etc, ie im sure most are aware that the majority of PMs cash flow comes from combustible nicotine. I dont see where anyone says it didnt? ???

Oh lawd, here we go again.....

The whole point of having regulatory clout is that the regulator does (or doesn't do) what you want it to. In other words, the regulator serves to advance industry interests instead of the public interest. This is commonly known as "regulatory capture" in the economics literature. My point about menthol is that Big Tobacco has been very clear that it doesn't want menthol banned, and yet Scott Gottlieb is making a big push to do exactly that. I don't know how much more clear this can be.

Also, you seem to be unaware that the FDA gained much broader powers to regulate the tobacco industry when the 2009 Family Smoking Prevention and Tobacco Control Act was signed into law. Talking about what the FDA was or wasn't doing 20 years ago isn't as relevant as you seem to think it is.

https://en.wikipedia.org/wiki/Family_Smoking_Prevention_and_Tobacco_Control_Act

I'm not trying to be pedantic with all of this. My overall point is that the structure of the US cigarette industry is changing surprisingly quickly from a two company oligopoly to a vaping free-for-all. The profit pool for the latter is likely to be much smaller than the profit pool for the former.

At the risk of being pedantic can you be clear as to why you think Gottlieb would ban only combustible menthol and not vapor menthol if the FDA wanted menthol gone completely? Why leave vapor menthol?

If nicotine consumption is the endgame,brands are maintained or merged via PMTA and regulation, and you have a regulator motivated to get rid of combustibles how is the profit pool smaller?