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RICHMOND, Va. -- Altria Group Inc. is commencing a cash tender offer for up to $2 billion cash tender offer on four note issuances, in connection with which it expects to record a one-time pre-tax charge of approximately $1 billion or 33 cents per share against reported earnings in the third quarter.
The tobacco company is also commencing an offering for new senior unsecured debt. Altria expects these transactions to reduce the weighted average coupon rate and future interest expense of its consolidated debt, according to a company release.
According to Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities LLC, Wells Fargo Securities estimates that will amount to roughly $97 million in annual pre-tax interest expense savings.
"Overall, we feel [Altria's] cash tender offer for a portion of its long-term debt is positive since it improves its maturity profile and reduces its interest expense," she said. "Although we think [Altria] could possibly have realized greater benefits if it had done this transaction sooner, we believe [it's] cash flow needs, particularly around a $500-million pension payment in 2010 and costs associated with [lease-in/lease-out (LILO) and sale-in/lease-out (SILO) transactions] might have dictated the timing of these types of transactions which may be why [Altria] chose to do this should now.
"Ultimately, we're glad [Altria] will be reducing its four highest-rate obligations as this should provide a boost to an already-healthy EPS growth outlook," she added.
She also added that Wells Fargo Securities believes Altria will likely get more aggressive on offering creative, innovative products in 2012 and beyond to maintain its reign at the top of the U.S. tobacco market.
"We believe the dual forces of [Philip Morris USA's] in-house R&D as well as its joint intellectual property ownership with [Philip Morris International] put [Altria] in a strong position relative to its competitors on the innovation front." Herzog said. "We would also not rule out an acquisition, perhaps in e-cigs."