Altria seen targeting $10 billion U.S. bond sale for Juul stake
|Toronto Star 12 Feb 2019 at 11:56|
NEW YORKâ€”Altria Group Inc., fresh off of its first euro bond offering in two decades, is turning to the U.S. market to help finance its foray into the booming e-cigarette market.
The tobacco giant is planning to sell around $10 billion of senior unsecured bonds in as many as seven parts, according to people with knowledge of initial discussions. The offeringâ€™s final size may change as bankers solicit orders, but itâ€™s likely to be the second-largest deal of the year behind Anheuser-Busch InBev NVâ€™s $15.5 billion sale last month to refinance SABMiller debt. Altria had been said to target more than $12 billion as of Monday.
Altria Group Inc., famous for its Marlboro cigarettes, is diversifying into areas away from its tobacco roots in search of higher-growth businesses. Itâ€™s paying $12.8 billion for a 35 per cent stake in e-cigarette maker Juul Labs Inc.Â Â (CAROLINE TOMPKINS / NYT)
The company, famous for its Marlboro cigarettes, is diversifying into areas away from its tobacco roots in search of higher-growth businesses. Itâ€™s paying $12.8 billion for a 35 per cent stake in e-cigarette maker Juul Labs Inc., and recently invested $1.8 billion in Canadian pot company Cronos Group Inc. to diversify into the cannabis industry.
Richmond, Virginia-based Altria has been suffering from falling cigarette sales as health-conscious consumers have abandoned tobacco. In the companyâ€™s latest quarter, it said smoking declines werenâ€™t as steep as expected, but it is still sees shipment volumes falling from 3.5 percent to 5 percent in 2019. Altria has indicated that it sees potential to bring Juul, already a success in the U.S., to global markets.
In doing so, it will compete with Philip Morris Internationalâ€™s IQOS device, which is already sold in around 43 countries as an alternative to cigarettes. Altria has a deal to sell IQOS in the U.S. if it gets approval from the Food and Drug Administration. The application also seeks to market it as a reduced risk as compared to cigarettes. Itâ€™s unlikely that the FDA will stop the companies from selling e-cigarettes altogether, though the agency does have the power to regulate tobacco products, which likely includes e-cigarettes, Bloomberg Intelligence analyst Holly Froum said in a report Tuesday.
The deal with Juul has drawn scrutiny from the FDA amid concerns about underage use of vaping products. European investors seemed undeterred, as Altria sold $4.8 billion across four tranches on Monday to help fund the transaction, its first euro offering since 1999. The company held calls with investors in both the U.S. and Europe to market the deal last week.
The longest maturity of the euro offering was 12 years, leaving the dollar component more skewed to bonds further out the curve, Bank of America Corp. strategists led by Hans Mikkelsen said in a report Monday. That matches up well with investor appetite for duration after the Federal Reserveâ€™s comments that it was holding off on further rate hikes for now, Mikkelsen said.
The longest portion of Altriaâ€™s offering, a 40-year security, may yield around 3.45 percentage points above Treasuries, said another person with knowledge of the matter, who asked not to be identified as the details are private.
The Fedâ€™s dovish tone, as well as positive economic data and strong corporate earnings, has propelled a rally in credit spreads and risk appetite, sending both the investment-grade and high-yield bond markets to new highs. Issuance has been strong, where investment-grade companies borrowed more than $10 billion on Monday.
Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. are managing Altriaâ€™s sale, according to one of the people.