"Strategically, we would see a Altria/UST combination as a positive for Altria, since a potential deal could greatly strengthen its position in the total tobacco industry," Goldman said.
The firm estimated a purchase price of nearly $70 per share, in line with recent tobacco merger and acquisition multiples. At that price, Goldman said the deal would add about 5 cents a share to Altria's earnings per share, or about 3%. The benefit could rise to about 5% if 3% of UST's sales are included in a cost-savings calculation. Goldman also estimated that the deal would enhance Altria's earnings-per-share growth by 50 to 100 basis points while still allowing Altria to buy back a sizable amount of shares.
The brokerage reiterated its buy rating on both companies. For Altria, Goldman said an upcoming investor presentation March 11 is another positive catalyst given its view that a cost restructuring action is likely to be announced. For UST, the firm believes the company should continue to post improving premium brands' volume trend in a profitable manner and envision a potential for additional share buyback aiding earnings-per-share growth.
Shares of Altria, a New York-based cigarette manufacturer, closed Friday at $75.44.
Shares of UST, headquartered in Stamford, Conn., closed at $55 on Friday. Greg Saulnier gs/pc
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