Financial Industry

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Debt Policy at UST Case Questions
Group members: Wei-Ting Liao; Cong Ren; Gerald Nyiti; Beidan Wang
1- ) Give a brief summary of the company background
UST Inc. is a smokeless tobacco company which enjoyed a long tradition and a recognizable brand name. It is the leading producer of moist smokeless tobacco products and widely known for its conservative debt policy and uninterrupted cash dividend payout since 1912.
The company is the major player in U.S. smokeless tobacco market. For example, it holds the maximum market share (77%) as a whole, and dominates especially in the growing segment of moist smokeless tobacco. Additionally, it has widely recognized brand and competitive positon in the market by constant innovation and new product innovation. Finally, UST has historically been one of the most profitable companies not only in the smokeless tobacco market but also in the corporate America.
Although the above advantages, UST now faces with continuous threat from price-value competitors, a softening smokeless tobacco market, investors’ concern about over-investment on non-core operations and negative effect of public and political sentiment towards the tobacco industry.
2- ) Evaluate UST’s attributes/Risks from view point of bondholder
The following factors weave into the risks and attributes of the company from the creditors’ point of view (“” and “” represents advantage and disadvantage, respectively):
Widely recognizable brand Name
UST has widely recognized brand. We can see from the Table B of the case, the 1998 market share of the top moist smokeless tobacco brands, only one brand is not from UST. In addition to this, UST combat entrants by launching similar products, rather than cutting prices. New product introduction and success in the market demonstrate UST’s strong pricing ability result from the well-known brand.

 Threatened…...

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