Philip Morris: Even Greater

A global giant, Phillip Morris International (PM) grows larger...

New York, July 10, 2009 – Philip Morris International Inc. [NYSE/Euronext Paris: PM] announced today that it has entered into an agreement to purchase 100% of the shares of privately owned Colombian cigarette manufacturer, Productora Tabacalera de Colombia, Protabaco Ltda. (Protabaco), for $452 million.

Protabaco is the second largest tobacco company in Colombia, with an estimated 2008 volume of 6.1 billion cigarettes and an approximate market share of 31.8%. The Company reported net revenues of approximately $107.6 million in 2008. Its leading brands include Mustang, Premier and President.

“We are extremely pleased to reach this agreement with Protabaco in order to continue to build our business in this important and strategic market,” said Miroslaw Zielinski, President of PMI’s Latin America and Canada Region. “This strategically compelling transaction will provide PMI with an excellent opportunity to further develop Protabaco’s strong brand portfolio and reflects the continuing confidence we have in the future of Colombia, its economy and the tobacco industry.”

In 2005, PMI acquired Compañía Colombiana de Tabaco S.A. (Coltabaco). Since then, PMI has continued to invest in Coltabaco, its employees and its infrastructure, as well as in social and economic programs in Colombia, including investments in the tobacco growing sector.

“This is an excellent development for Protabaco and our employees,” said Jaime Delgado, General Manager Protabaco. “PMI is well known as a successful manufacturer and marketer of quality tobacco products and we believe they are in an excellent position to continue to develop our strong brands and strong organization.”

The transaction, which is subject to competition authority approval and final confirmatory due diligence, is projected to be immediately marginally accretive to PMI’s earnings per share and is expected to close within the next six months.

SEC Filing

This is one of the very few investments I am comfortable buying and holding for a VERY LONG time, even many years. Aside from the stunning fundamentals of the tobacco business, there is a currency play here.

The potential for growth in this business is vast, the business has great fundamentals (they make a legal product for pennies they sell to addicts for dollars) and most importantly, they have a dominant market position in almost every market they play in. Oh, did I mention the almost 5% dividend yield?

What are the risks to it? A massive global effort to ban cigarettes. Is it likely? No. Why? Tax revenue... If the US can't ban them because they are enslaved to their tax revenues (and Master Settlement payments) then they wont be banned anywhere else. When you add in the scenario in which many cigarette companies are in fact quasi-state run institutions and Phillip Morris has actually partnered with them, the "banning" question becomes even more remote.

So you have a business that is global, without the US litigation risks, a 5% dividend yield, vast / growing markets and a product people who use it will not do without...

It is a great business...

Disclosure: Long PM

Comments

[fxmaven:]

PM is my favorite stock, the kind where you can reinvest your dividends, and watch them grow year by year like clockwork.

Jul 13 06:23 PM

[samadams:]

40% margins, what's not to love

Jul 13 07:49 PM

[Judzee 49:]

Love it! PM has put my kid through college and helped us buy a brownstone in NY that we could have never afforded (of course we're talking years ago). I have faith that we will continue on a positive path. Buy it!

Jul 13 08:31 PM

[JPSmith:]

PM vs MO for the long haul -- opinions please?

Jul 13 10:38 PM

[Old Rick:]

JPSmith wrote: PM vs MO for the long haul -- opinions please?

IMHO PM because of 1) the international growth potential and 2) FAR less litigation and regulatory risk than MO.

Jul 14 12:01 PM

[knight:]

does nobody care that they sell death!! There are far better and ways to make money and plenty of other opportunities out there. At some point one has to say making money isnt as important as my ethics.

Jul 14 06:04 PM

[PalinTologist:]

I'll answer that: making money is more important than YOUR ethics, to me anyway. Aside from taking advantage of your choice of words, I've long ago given up on trading from a moral perspective.

How does one invest wisely and avoid 'bad' companies anymore given the multi tentacles that modern, conglomerate corporations all seem to have?

BTW, don't buy TEVA if you don't want to buy companies that sell death. They manufacture the 'morning after' pill. No, I'm not a right wing wacko; I'm pro choice. I'm just saying.


On Jul 14 06:04 PM knight wrote:

> does nobody care that they sell death!! There are far better and
> ways to make money and plenty of other opportunities out there. At
> some point one has to say making money isnt as important as my ethics.

Jul 15 12:37 PM

[JPSmith:]

I'm not so sure about the regulatory risk thesis...some have argued that the regulatory risk is now lower in the U.S. than in many European countries due to the recent FDA actions (which were supported by Philip Morris as they erect a huge barrier to US market entry for other players). I do agree PM has greater growth potential than MO

Jul 17 10:29 AM