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Black & Mild Maker Being Acquired
Posted: Friday, November 02, 2007
By David Savona
Eyeing the growing U.S. cigar market, cigarette maker Altria Group Inc. agreed to acquire John Middleton Inc. yesterday for $2.9 billion in cash. Middleton, based in King of Prussia, Pennsylvania, is a leading producer of mass-market cigars, notably the Black & Mild brand. It was founded in 1856.
Altria, the largest tobacco company in the world, is the parent company of Philip Morris, producer of Marlboro cigarettes.
Black & Milds are made by machine, and are filled with pipe tobacco. They measure about five inches in length and sell for around 65 cents apiece in convenience stores. They are produced in the United States in two Pennsylvania plants, one in King of Prussia and the other in Limerick.
While U.S. cigarette consumption is declining, the U.S. cigar market is growing. The total market comprises some 10.5 billion cigars. Only around 300 million of those are premium, handmade cigars made from long-filler tobacco. The vast majority of cigars are made by machines, using cut tobacco and a variety of flavorings. The machine-made cigar segment is divided roughly 50/50 into large and small cigars; Middleton competes in the large-cigar segment, which is growing at a compound annual rate of about 4 percent and is "highly profitable," according to Altria. According to Information Resources Inc., Middleton has about 23 percent of the market for large cigars.
Altria said the net cost of the acquisition, after deducting approximately $700 million in present value tax benefits arising from the terms of the transaction, would be $2.2 billion. The deal is expected to close by the end of the year.
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