Debt Policy at UST The primary business risk facing UST in 1998 was that the U.S. tobacco industry itself was facing an uncertain future characterized by legal challenges, declining volumes, marketing restrictions, increased taxes, heavy discounting and consolidation. The U.S. smokeless tobacco industry also was transitioning away from the Premium Market and growing through the Price Value Market at a rate of 9%. Bondholders face very little investment risk given UST’s high interest coverage ratio
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Debt Policy at UST Inc. Group #10 What are the attributes and primary business risks associated with UST, from viewpoint of a potential creditor (bondholder). Generally, UST is one of the most profitable companies in America. It is also the first and leading producer of smokeless tobacco. However, it still meet some risk. First of all, UST has seven current health related lawsuits. Secondly, UST didn’t has value opportunity to expand in international market. Finally, UST didn’t have an effective
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Term Papers and Free Essays Browse Essays 1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the viewpoint of a bondholder. (Your answer should be more qualitative than quantitative!) The following factors weave into the risks and attributes of the company from the creditors’ point of view: A. UST had seven pending health related lawsuits at the end of 1998. The outcomes of these suits are uncertain. Despite
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Case 1 – Debt Policy at UST Inc. 1) UST is the dominant producer of moist smokeless tobacco, or moist snuff, controlling approximately 77% of the market. UST has been one of the most profitable companies in corporate America with low debt compared to other companies in the tobacco industry and the company has been recognized by Forbes in terms of profitability by achieving return of capital of 92.1%. Price elasticity of its products is also important while evaluating. Smokeless tobacco industry
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Harvard Business School 9-200-069 Rev. May 3, 2001 Debt Policy at UST Inc. In December 1998, UST Inc.’s board of directors approved a plan to borrow up to $1 billion over five years to accelerate its stock buyback program.1 For UST Inc., the leading producer of moist smokeless tobacco products and a company widely known for its conservative debt policy and high dividend payout (uninterrupted cash dividends since 1912), this announcement generated considerable attention on Wall Street
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Positive points: UST was one of the most profitable companies in America. Average ROA is 54%, average ROE is 103% and GPM is 80%.EBITDA/Interest Coverage 105.6. UST is the first and leading producer of moist smokeless tobacco. UST has very conservative debt policy and stably growing free operational cash flows. Should UST undertake a billion $ recapitalization? Calculate the marginal (or incremental) effect on UST's value, assuming the entire recap is implemented immediately Yes, UST will be able
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Harvard Business School 9-200-069 Rev. May 3, 2001 Debt Policy at UST Inc. In December 1998, UST Inc.’s board of directors approved a plan to borrow up to $1 billion over five years to accelerate its stock buyback program.1 For UST Inc., the leading producer of moist smokeless tobacco products and a company widely known for its conservative debt policy and high dividend payout (uninterrupted cash dividends since 1912), this announcement generated considerable attention on Wall Street
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EXECUTIVE SUMMARY UST Inc. is a principal producer of moist smokeless tobacco products, controlling roughly 77% of the overall market, and widely known for its conservative debt policy and high dividend payout. UST also has an exceptional financial performance as net sales has been growing at 11% compounded annual growth rate, and cash flows have been growing at 12% compounded annual growth rate for the past 10 years. However, UST’s board of directors approved a plan to borrow up to $1 billion
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UST Items for Discussion 1. What are the attributes and primary business risks associated with UST, from viewpoint of a potential creditor (bondholder). Attributes: UST has been a dominant producer in the tobacco industry. Also, UST is well known for its high gross profit margin, which means UST is capable of maintaining its stable financial situation. UST is a major moist smokeless tobacco producer, and the demand on moist smokeless tobacco is growing very fast due to increased government
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Situation/Conclusion UST is the dominant producer of moist smokeless tobacco or snuff, controlling 77% of the market. UST has been one of the most profitable companies in corporate America. UST's five-year return on capital of 9.21% was nearly 20% higher than the 2nd ranked firm. Annual return on equity averaged 89% and return on assets averaged 48%. Over the same period, UST also provided a generous return on capital to investors paying $2.2 billion in dividends and repurchasing $2.0 billion in
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